Powell signals a September rate move is possible, with inflation data set to guide the Fed's decision
A potential September rate cut by the US Federal Reserve is drawing close scrutiny from global markets, with investors weighing inflation data and political pressure on central banks.
According to Reuters, Fed Chair Jerome Powell signalled at Jackson Hole that a cut was likely but not guaranteed, prompting traders to assign 84 percent odds of a move, as measured by the CME Group’s FedWatch Tool.
Barclays, BNP Paribas, and Deutsche Bank now expect a 25-basis-point reduction.
Peter Cardillo, chief market economist at Spartan Capital Securities, said markets “may have overreacted” to Powell’s comments.
He expects no more than a 25-basis-point cut, noting that the decision could hinge on the US personal consumption expenditures index due Friday.
The August data will arrive before the Fed’s September 16–17 meeting, with last month’s hotter producer price numbers already clouding certainty.
Market reaction has been cautious.
The Dow Jones Industrial Average lost 349.27 points, or 0.77 percent, closing at 45,282.47. The S&P 500 fell 0.43 percent to 6,439.32, and the Nasdaq Composite slipped 0.22 percent to 21,449.29.
Global equities followed suit, with MSCI’s worldwide gauge down 0.24 percent and the STOXX 600 dropping 0.44 percent. London’s closure for a holiday thinned European trading.
Corporate earnings remain a counterweight, with Nvidia set to report on Wednesday.
According to LSEG, year-over-year estimated S&P 500 earnings growth reached 12.9 percent as of Friday, up sharply from 5.8 percent on July 1.
Keurig Dr Pepper added to corporate headlines with an US$18bn takeover of JDE Peet’s, Reuters reported, Europe’s largest deal in more than two years.
Bond markets highlighted the tension between fiscal policy and monetary authority.
Reuters reported US Treasury yields rising, with 10-year notes up 1.9 basis points to 4.277 percent, as new auctions loomed. Euro zone yields also reversed Friday’s declines.
The dollar index strengthened 0.56 percent, the euro fell 0.79 percent to US$1.1623, and the greenback gained 0.5 percent to 147.67 yen.
Financial Post reported growing warnings of “fiscal dominance,” where governments’ debt loads pressure central banks to keep borrowing costs low.
Kenneth Rogoff, Harvard professor and former IMF chief economist, said such dynamics create “enormous political incentives” to influence monetary policy.
Analysts highlighted Trump’s criticism of Powell, the temporary Fed appointment of Stephen Miran, and futures pricing in five rate cuts by the end of next year.
The OECD projects sovereign borrowing in advanced economies will hit US$17tn this year.
CNBC noted Asian markets mirrored the cautious tone.
Trump’s threats of “200% tariffs or something” on China over rare-earth magnets, combined with his firing of Fed Governor Lisa Cook, unsettled investors.
Japan’s Nikkei 225 fell 1.01 percent, South Korea’s Kospi dropped 0.78 percent, and China’s CSI 300 lost 0.68 percent.
Australia’s S&P/ASX 200 fell 0.41 percent, and Hong Kong’s Hang Seng slipped 0.44 percent.
Commodities were mixed.
US crude rose US$1.14 to US$64.80 per barrel and Brent climbed $1.07 to US$68.80, supported by geopolitical risks to Russian supply.
Spot gold declined 0.21 percent to US$3,364.47 an ounce, while in Asia it later strengthened 0.17 percent to US$3,372.
