Fed chair hints at rate cut in September

Federal Reserve Chair Jerome Powell has signaled a potential interest rate cut in September, leading to a surge in the stock market Friday morning.

Powell hinted at the cut during a speech delivered Aug. 22 at the Fed’s conference in Jackson Hole, Wyoming. Business Insider reported that Powell provided a pulse check on the Fed’s policy.

“Our policy rate is now 100 basis points closer to neutral than it was a year ago, and the stability of the unemployment rate and other labor market measures allows us to proceed carefully as we consider changes to our policy stance,” Powell said, according to the outlet. “Nonetheless, with policy in restrictive territory, the baseline outlook and the shifting balance of risks may warrant adjusting our policy stance.”

CBS News reported that Powell also said, “Risks to inflation are tilted to the upside, and risks to employment are to the downside — a challenging situation.”

According to Reuters, the stock market spiked after Powell’s speech. The Dow Jones Industrial Average rose 2.02% to an all-time high of 45,688.25, while the S&P 500 grew 1.63% to 6,473.70, which Reuters noted puts it “on track for its biggest one-day gain since May.” Tesla rose the most, with a 4.7% rise, while the Russell 2000 index hit its highest level so far this year with a 3.9% gain. Other stocks also saw significant growth.

The potential rate cut would occur during the Fed’s Sept. 16-17 meeting. According to USA Today, futures markets are predicting a 90% chance of a cut. The outlet also reported that officials will make a decision next month after reviewing August employment and inflation reports. According to CBS News, inflation currently remains above the central bank’s annual target of 2%, while job growth was less than expected in July.

USA Today reported that a quarter-point cut would “reduce borrowing costs for millions of Americans on credit cards, auto loans and certain mortgages, among other types of loans” while also lowering “bank savings rates that have gotten more generous the past few years.”