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Federal Reserve Chair Jerome Powell’s speech at the Jackson Hole conference has not only lifted the stock market but also garnered praise from some experts and business leaders. They are impressed by Powell’s confidence in policy adjustments and his acknowledgment of cooling inflation and a more subdued labor market.
Melissa Brown, Managing Director of Applied Research at SimCorp, told Quartz via email that Powell’s statement that “the time has come for policy to adjust” was significant. She noted that the Fed Chair’s confidence in a soft landing for the U.S. economy aligns with a scenario that is likely to benefit equity markets.
“If he had been too bearish on economic prospects, implying bigger and/or sooner cuts in rates, this would come at the expense of economic and earnings growth. Alternately, had he been more bullish on the economy, we would have anticipated higher rates and inflation, which also would hurt markets,” she said.
She said the notion of a soft landing was “just right” for potential market reactions, offering a balanced outlook with lower rates and inflation while still maintaining growth prospects.
Glen Smith, Chief Investment Officer, GDS Wealth Management, with $1 billion in assets under management, told Quartz in an email that Powell’s speech was not specific about future rate cuts and had all but assured a 25 basis point rate cut in September.
“The September meeting is three weeks away, and there are only a handful of jobs and inflation data points to be released until then, and it’s unlikely that these next few data points will change the Fed’s plans to cut rates by 25 basis points next month,” he said.
He noted that while a September rate cut seems certain, the key question is whether it will be a one-time adjustment or the start of a more extensive cutting cycle. This will depend on economic data over the next two to three months, he added.
The stock market has significantly rebounded since early August, indicating that the steep selloff was not a sign of a looming recession. With the presidential election less than 75 days away, the Fed faces the dual task of deciding on rate cuts and evaluating the policies of the 47th president to balance growth and inflation.