By Lewis Krauskopf, Laura Matthews and Davide Barbuscia
NEW YORK (Reuters) -Federal Reserve Chair Jerome Powell’s closely watched Jackson Hole speech on Friday boosted optimism in markets that the U.S. central bank is poised to ease rates, sending investors to pile into riskier assets and interest-rate-sensitive sectors.
In his final address as Fed chair at the Jackson Hole, Wyoming, economic symposium, Powell hinted at a September interest rate cut but stopped short of committing, striking a careful balance between mounting job-market risks and lingering inflation pressures.
“Powell was more dovish than the market expected, but he is responding to the weakening of the labor market, recognizing the risks there. So it sets us up for a September cut. That’s a positive,” said Jay Hatfield, chief executive officer at Infrastructure Capital Management.
The Jackson Hole address followed a weak July jobs report and significant downward revisions to earlier job figures that fueled bets the U.S. central bank will cut interest rates later this year from the current 4.25%-4.5% range.
Those expectations lost steam in recent weeks as a surge in wholesale prices in July squashed hopes for a half-point move at the Fed’s next rate-setting meeting in September, leaving markets braced for about two 25-basis-point cuts for the rest of the year.
Rates futures traders assigned a 70% probability to a quarter-point interest rate cut in September ahead of Powell’s speech. That changed to 89% in mid-morning trade on Friday, according to LSEG data.
The address sent the dollar lower. The dollar index, which measures the greenback against a basket of currencies including the yen and the euro, was last down 0.8%.
Meanwhile, rate-sensitive two-year U.S. Treasury yields dropped by about eight basis points after the speech to 3.692%. Benchmark 10-year yields were down about five basis points to 4.255%. Yields move inversely to prices.
U.S. stocks have tended to fare well around previous Jackson Hole conferences in August, but the market has seen sizable moves in both directions in recent years.
Stocks extended gains after Powell’s address, with the S&P 500 last up 1.6% on the day. Rate sensitive stocks gained. Small caps, which typically rely on borrowing to fund their growth, were surging, with the small-cap Russell 2000 up 3.6%. Homebuilding shares also jumped, with the PHLX housing index up 4.5%.
The rebound in stocks followed declines in the heavyweight U.S. technology sector that dragged down stock indexes earlier in the week, underscoring concerns over potentially overheated AI-driven gains and steep valuations for the group.
Powell’s comments are “music to the market’s ears,” said Angelo Kourkafas, senior investment strategist at Edward Jones in St. Louis.
“The fact that we are still looking for easing ahead provides some comfort that at least the elevated (equity) valuations and expectations are supported by the fact that we’re looking at looser policy,” he said.
The speech, Powell’s final one as chair with his term ending in May, comes after relentless pressure from U.S. President Donald Trump on Powell to cut interest rates.
Those pressures ratcheted up earlier this week after Trump urged Fed Governor Lisa Cook to resign over mortgage allegations raised by one of his political allies, a move seen as potentially leading Trump to appoint more dovish members to the Fed’s rate-setting Federal Open Market Committee.
On Friday, Trump said he would fire Cook if she doesn’t resign.
“Trump’s words on Cook… are once again raising concerns over the Fed’s independence,” said Helen Given, director of trading, Monex USA, Washington, who said that going short the dollar was “back in a big way” following Powell’s speech and Trump’s remarks about Cook.
(Reporting by Davide Barbuscia, Lewis Krauskopf, Carolina Mandl and Laura Matthews; Editing by Megan Davies and Andrea Ricci)
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