The stock market closed at record highs Friday after Federal Reserve Chair Jerome Powell sparked confidence in a September rate cut among Wall Street traders.
The Dow Jones Industrial Average rose more than 840 points Friday, gaining 1.9 percent to close at a record high of 45,631.74. The Nasdaq composite also posted a gain of 1.9 percent, while the S&P 500 index closed 1.5 percent higher.
Stocks rallied as Powell gave remarks from the Fed’s annual summit in Jackson Hole, Wyo., suggesting that the central bank would soon cut rates amid a slowdown in the job market.
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“While the labor market appears to be in balance, it is a curious kind of balance that results from a marked slowing in both the supply of and demand for workers,” Powell said. “This unusual situation suggests that downside risks to employment are rising. And if those risks materialize, they can do so quickly.”
While Powell spent much of his speech addressing the chances of higher tariff-driven inflation, Wall Street latched onto his description of the “shifting balance of risks” toward an employment slowdown and sent stocks soaring.
“Fed Chairman, Jerome Powell, in a Fed-speak way, almost confirmed that the Fed is about to restart its monetary policy easing campaign at its next Federal Open Market Committee (FOMC) meeting in September,” wrote Eugenio Aleman, chief economist at Raymond James, in a Friday analysis.
“We had expected the Fed to start lowering interest rates at their October meeting, but his speech, if there are no big changes between now and then, tends to confirm that the Fed is ready to restart policy easing soon.”
Powell declined to say when the Fed would cut, but futures markets immediately ramped up the odds of a reduction at the FOMC’s September meeting. The CME FedWatch tool set the probability of a Fed cut in September at 83 percent, up from 75 percent the day prior.
The Fed has kept interest rates at a baseline range of 4.25 to 4.5 percent since the start of the year, despite immense pressure from President Trump to reduce borrowing costs.
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Powell acknowledged Friday that with Fed rates still at a level that would slow economic activity, the bank could move them back toward neutral as it navigates major shifts in the economy.
“Powell believes this adjustment can occur because monetary policy is restrictive, therefore the Fed will aim to normalize rates rather than become accommodative,” wrote Ryan Sweet, chief US economist at Oxford Economics.
“This hints that the next rate cut isn’t the beginning of a series, particularly as Powell stressed that policy isn’t on a preset course and will continue to be based on the incoming data and the balance of risks.”
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While Powell’s comments on the labor market took most of Wall Street’s attention, the Fed chief also expressed concerns about the overall impact of Trump’s tariffs on inflation.
Powell said that while the impact of Trump’s tariffs are “clearly visible,” it is not yet clear if they will lead to a one-time increase in prices or trigger a longer-term inflation surge.
“We expect those effects to accumulate over coming months, with high uncertainty about timing and amounts,” Powell said.
