Summary:
Federal Reserve Chair Jerome Powell signaled a potential interest rate cut in September to support the labor market, causing Treasury yields to drop and traders to increase bets on a rate reduction. Powell’s remarks at the Jackson Hole conference emphasized cautious policy adjustments amid stable unemployment metrics. This shift has bolstered bond markets and increased expectations for two rate cuts by year-end, with the first likely in September. Former St. Louis Fed President James Bullard described the move as a “done deal.”
What This Means for You:
- Mortgage Rate Implications: A rate cut could lower borrowing costs, making home loans more affordable.
- Bond Market Opportunities: Falling Treasury yields may boost bond prices, offering potential gains for investors.
- Dollar Weakness: A weaker dollar could impact import costs and overseas investments.
- Outlook: Stay informed on upcoming Fed meetings and labor market reports to anticipate further policy shifts.
Original Post:
By Ezra Fieser and Carter Johnson
(Bloomberg) — Treasuries jumped and traders added to bets on a September interest-rate cut after Federal Reserve Chair Jerome Powell indicated a reduction may be warranted to support the labor market.
Yields tumbled as much as 11 basis points across tenors with the two-year notes’ — which are more sensitive to changes in monetary policy — falling to 3.68%, the lowest level in more than a week. Traders immediately boosted wagers on a quarter-point cut next month, pricing in a roughly 85% chance of a move, up from around 65% before Powell spoke.
In remarks prepared for the Fed’s annual conference in Jackson Hole, Wyoming, on Friday Powell said, “the stability of the unemployment rate and other labor market measures allows us to proceed carefully as we consider changes to our policy stance.”
The greenback slumped to a session low against a basket of peers as he spoke, with the Bloomberg Dollar Spot Index falling 0.8%.
For bond investors, Powell’s comments helped solidify hopes that the Fed will resume cutting after leaving the policy rate on hold at a range of 4.25% to 4.5% since December. For weeks, the market had been whipsawed by data that painted a mixed picture of the US economy and hawkish comments from other Fed officials.
Interest-rate swaps tied to Fed meetings show policymakers cutting twice before the end of the year, with the first one seen more likely to come next month.
“He used the speech to solidify expectations for 25 basis points in September,” James Bullard, former St. Louis Fed President and now dean of Purdue University’s business school, said on Bloomberg TV. “He leaned into the most recent labor market report which was very soft. I think that is a done deal.”
For Treasuries, the rally was the best day since the start of August, when a report showed softness in the U.S. labour market.
Powell’s remarks suggest “a shifting of risks towards the weakness in the labor market and away from the stickiness of the US inflation,” said Valentin Marinov, head of G-10 FX research and strategy at Credit Agricole. “His comments further seem to prepare the ground for a September cut.”
–With assistance from Ye Xie.
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Last modified: August 22, 2025
Extra Information:
For further insights on the Federal Reserve’s monetary policy, visit the Federal Reserve’s official website. To understand how interest rates impact the economy, check out Investopedia’s guide. For historical data on Treasury yields, refer to U.S. Treasury resources.
People Also Ask About:
- What triggers a Federal Reserve rate cut? A rate cut is often triggered by economic slowdowns or labor market weakness.
- How do Treasury yields respond to rate cuts? Treasury yields typically decrease as bond prices rise during rate cuts.
- What is the impact of a weaker dollar? A weaker dollar can make exports cheaper but increase import costs.
- What are interest rate swaps? Interest rate swaps are financial contracts where two parties exchange interest payments based on a specified principal amount.
Expert Opinion:
Powell’s remarks highlight the Fed’s pivot toward addressing labor market concerns over inflation, signaling a cautious yet strategic approach to monetary policy. This shift underscores the importance of adaptive policymaking in navigating economic uncertainties.
Key Terms:
- Federal Reserve interest rate cut
- Jackson Hole monetary policy
- Treasury yields and rate cuts
- Impact of Fed decisions on bonds
- Labor market and rate adjustments
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