After months of stubborn resistance, Jerome Powell has finally shown his cards. Speaking at the annual Jackson Hole symposium Friday, the Fed chair essentially admitted what markets have been pricing in for months: interest rate cuts are coming, and probably sooner than later.
The timing couldn't have been better for investors. After four straight sessions of losses that had traders reaching for the antacid, Friday's rally salvaged what was shaping up to be a thoroughly disappointing week. The S&P 500 managed to eke out a 0.27% gain for the week—not exactly champagne-popping territory, but enough to extend its winning streak to three weeks.
Let me tell you, I've covered enough of these Fed speeches to recognize a pivot when I see one. This was a pivot.
A Week of Waiting
The market's performance Monday through Thursday was about as exciting as watching grass grow in a drought. Each day followed roughly the same script: open flat, drift lower, close down. Rinse and repeat.
Tech stocks got particularly hammered midweek. Nvidia—the market darling that can seemingly do no wrong—stumbled after reports surfaced that it might need special licenses for new China-bound chips. Because apparently what this market really needed was another dose of U.S.-China trade tension. (Spoiler alert: it didn't.)
Meanwhile, Donald Trump was doing what he does best—tweeting... er, Truth Social-ing?... about Powell being "Anti-Trump" and blaming him for everything from housing affordability to probably the Patriots' quarterback situation.
Friday's Game-Changer
Then came Friday. Oh, Friday.
Powell's remarks hit the wires and—boom!—markets went vertical. The S&P jumped more than 1.5%, erasing the entire week's losses faster than a teenager deletes browser history when their parent walks in.
Look, the market's reaction shouldn't surprise anyone who's been paying attention. For months, traders have been positioning for rate cuts while Powell and friends have been playing hard to get. Now that he's finally acknowledged the obvious—that inflation has cooled enough to justify easing—investors practically threw a digital ticker-tape parade.
The odds of a September rate cut immediately shot up to 75% in the CME FedWatch Tool. That's not just a lean, folks. That's a full-body tilt.
Adding to Friday's drama, the White House announced Trump would make a noon statement... which turned out to be about the government taking a 10% stake in Intel and slapping new tariffs on imported furniture. Because nothing complements monetary policy quite like government semiconductor investments and sofa tariffs.
The Powell Perspective
What's fascinating to me—having covered the Fed since before Powell took the chair—is the timing of this shift. The economic data hasn't dramatically changed. Inflation hasn't suddenly plummeted. The job market hasn't collapsed.
So why now?
One possibility: the Fed is seeing weakness in areas that don't show up in headline numbers yet. Commercial real estate troubles? Banking sector stress? Or maybe they've finally accepted that their preferred inflation measures have been trending in the right direction long enough to justify action.
Alternatively (and this is my pet theory), this could be the Fed's version of an insurance cut—getting ahead of potential economic weakness rather than waiting until we're already in trouble.
Remember when Powell called the first pandemic-era cuts an "insurance" measure? That worked out... well, let's just say differently than expected.
What's Next?
We've got 24 days until the next Fed meeting—plenty of time for economic data to shift the narrative. One hot inflation print or surprisingly strong jobs report could easily dampen some of Friday's enthusiasm.
But for now, it feels like markets finally got what they wanted. The only question is: how much of a September cut is already priced in? Investors have been anticipating easier monetary policy for months. Now that Powell has essentially confirmed their expectations, where does the next leg of market growth come from?
The 6,200 level on the S&P still looks like decent downside protection for the nervous nellies out there. With the index sitting at all-time highs and monetary policy potentially shifting toward accommodation, though, the path of least resistance appears to be upward.
At least until something else comes along to worry about.
And in markets? There's always something.
