Markets Soar After Powell Opens the Door To Rate Cuts in Jackson Hole: Aug. 22, 2025

During his Jackson Hole presentation this morning, Chair Powell acknowledged that labor market risks are skewed to the downside, which reignited animal spirits across Wall Street. The Fed Chief’s illustration of the societal pain of job losses and rising unemployment has fixed-income watchers penciling in two to three rate reductions by year-end while sparking investor enthusiasm amidst a near certainty of a quarter-point trim at next month’s meeting. Indeed, participants understood his comments to mean that the FOMC is increasingly focused on employment weakness rather than price pressures at this juncture, even though Powell alluded to inflation uncertainties persisting.

The commentary is leading to an aggressive descent across the yield curve, which is plunging in bull steepening fashion, led by the shorter tenors because they are more influenced by monetary policy easing prospects. Stocks are joining the party, too, as softer borrowing costs bolster trader confidence and widen the path for a broader rally.

The Impact of Monetary Easing

Looser financial conditions will significantly help the recent stock market laggards that are cyclically oriented and rate sensitive. Catch-up moves from some of the underperforming sectors can boost the health of the overall market by reducing its concentration and dependence on the magnificent 7. Emblematic of the risk-on mood is the Russell 2000, up almost 4% on the session, gaining more than twice that of the other significant stateside equity benchmarks, as all 11 major segments participate in the advance. Meanwhile, the Dow Jones Industrial Average has reached a fresh all-time high, and the S&P 500 is inching closer to a new record too. Elsewhere, bitcoins, forecast contracts and the commodity complex ex natural gas are catching strong bids today, as the potential resumption of the central bank’s cutting cycle propels optimism. Prices for the greenback and volatility protection instruments are sinking, however, due to cheaper domestic credit and subdued demand for hedges.

International Roundup

Rice Prices Help Ease Japan CPI Increase

Japan’s rice inflation fell from 100% in July to a still painful level of 90.7% last month, helping to both reduce the year over year (y/y) climb of the country’s Consumer Price Index and hold the month over month (m/m) result steady. In July, the National CPI was up 0.1% m/m, matching the June print while the y/y result of 3.1% descended from the 3.3% increase in the preceding month, according to the Statistics Bureau of Japan.

Encouragingly, the core CPI, which excludes food, also eased with a recorded y/y number of 3.1% following June’s 3.3% gain. The metric, however, surpassed the economist consensus estimate of 3%.

UK Shoppers Feel Better About Their Finances

Shoppers became slightly less downbeat this month with the GfK Consumer Confidence Barometer climbing from -19 to -17, which was better than the economist consensus estimate for an unchanged result. The overall gain was led by consumers views of their finances during the past and future 12 months. The former moved from -7 to -4 and the latter climbed from 2 to 5. Neil Bellamy, Consumer Insights Director at GfK, believes the improvement was driven by the Bank of England’s August 7 rate cut. Sentiment regarding making major purchases also improved from -15 to -13. Conversely, the general economic situation for the next 12 months fell from -29 to -30.