In his highly anticipated speech at Jackson Hole, Federal Reserve Chairman Jerome Powell announced that it is time for an adjustment in monetary policy, signaling a potential interest rate cut at the upcoming Federal Reserve meeting on September 17 and 18. Powell expressed confidence that inflation is on track to return to the Fed’s 2% target and emphasized that the pace of rate cuts will depend on future data and risks. This statement suggests that the Federal Open Market Committee (FOMC) will likely cut interest rates at the next meeting, which is the last one before the U.S. presidential elections on November 5.
Previously, Powell’s speeches had not hinted at the possibility of a rate cut, which markets had initially expected in the first half of the year before inflation concerns led to a shift to expectations for a cut in September. The minutes of the Fed’s last meeting indicated that a majority of FOMC members believed it would be appropriate to ease monetary policy at the next meeting if data continued as expected. Powell reiterated the Fed’s commitment to supporting a strong labor market as job creation returns to pre-pandemic levels, even though recent data showed a significant downward revision in job creation figures.
The updated job creation data revealed a slower pace of job growth than initially estimated, with unemployment rising to 4.3%. This poses a potential challenge, as the gradual slowdown in job creation raises concerns about the labor market. Analysts anticipate a 25 basis point rate cut at the upcoming meeting, but nearly 40% predict a more aggressive 50-point cut. In response to Powell’s remarks, European markets reacted positively, with Milan’s stock exchange closing up 1.02% and other major European indices also experiencing gains.
In Europe, Madrid led the gains with a 1.09% increase, followed by Frankfurt’s DAX (+0.77%), Paris’s CAC (+0.7%), and London’s markets (+0.59%). Amsterdam’s AEX was the only index to close virtually unchanged (+0.02%), weighed down by semiconductor losses. Nestle in Zurich saw minimal movement (+0.29%) following an unexpected change in leadership. Overall, European markets celebrated Powell’s speech, with Italy’s FTSE MIB advancing by 1.02% to close at 33,650.17, reflecting positive sentiment in response to the potential interest rate cut by the Federal Reserve.
