29 Sept 2025
Jerome Powell adopted a notably softer and more dovish tone in his recent remarks, contrary to market expectations of a continued hawkish stance on inflation. His statements, which emphasized labor market risks and the Fed's independence, led to significant market shifts, particularly reinforcing expectations for a September interest rate cut.
Jerome Powell's recent statements presented a more dovish and softer approach than anticipated by traders and economists, who had expected him to maintain a hawkish stance on inflation. While inflation was discussed, Powell significantly focused on the labor market, emphasizing increasing risks of weakness within it.
Powell indicated that the effects of tariffs on inflation are likely to be short-lived, suggesting a temporary impact rather than a persistent inflationary pressure. This perspective contributes to the overall cautious approach to monetary policy adjustments.
Powell advised caution in adjusting monetary policies, noting that a temporary scenario for inflationary effects would lead to a slower pace of policy adjustments. This cautious outlook underpins the Federal Reserve's flexible approach to economic conditions.
Powell refrained from discussing political pressures from the government, instead reiterating the Federal Reserve's unwavering commitment to its dual mandate of achieving price stability and full employment. He underscored the critical importance of the central bank's independence from political interference.
The dovish nature of Powell's comments solidified market expectations for a 25 basis point interest rate cut in September, effectively dispelling discussions about a larger reduction. Prior to his speech, traders assigned a 65% probability to a 25 bps cut, which subsequently surged to 85%.
Following Powell's remarks, bond yields experienced a sharp decline, with traders maintaining their bets for a 25 basis point rate cut in September. Specifically, the highly policy-sensitive two-year bond yields decreased by approximately 10 basis points, and ten-year bond yields reached 4.25%, marking their lowest point in a week.
During Powell's speech, two-year bond yields decreased, while the S&P 500 index and Bitcoin saw temporary increases. The US Dollar initially rose but then weakened against other currencies. After the speech concluded, the market remained generally optimistic and relieved by Powell's more expansionary and softer stance.
Powell declined to respond to questions concerning Ms. Cook, amidst persistent demands from Donald Trump for her resignation. Trump has reportedly threatened to force her removal if she does not resign, indicating a strong desire for her to be replaced at the Federal Reserve.
The perceived softness in Powell's language confirmed market expectations for a 25 basis point interest rate cut in September, thereby dismissing the possibility of a larger adjustment.
| InsightCategory | KeyInsight | ImpactSummary |
|---|---|---|
| Powell's Stance | Dovish Shift | Contrary to hawkish expectations, Powell adopted a softer tone, prioritizing labor market risks alongside inflation. |
| Inflation Outlook | Tariff Effects Temporary | Powell suggested tariffs would have only a short-lived impact on inflation. |
| Monetary Policy | Cautious Adjustment | Powell advocated for cautious monetary policy adjustments, citing temporary inflationary effects. |
| Fed Independence | Commitment to Dual Mandate | Powell reaffirmed the Fed's independence and dedication to price stability and full employment, avoiding political pressure discussions. |
| Interest Rate Expectations | September 25bps Cut Confirmed | Powell's remarks solidified market bets on a 25 basis point rate cut in September, with probability rising to 85%. |
| Bond Market Reaction | Yields Plunge | Two-year bond yields fell by 10bps; ten-year yields hit 4.25%, a one-week low, signaling a dovish interpretation. |
| Broader Market Sentiment | Market Euphoria | S&P 500 and Bitcoin saw increases; the Dollar weakened as markets welcomed Powell's expansionary stance. |
