Markets surge as Powell leaves door open for rate cuts

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Emilio Ghigini

22.08.2025

Markets surge as Powell leaves door open for rate cuts — Fed Chair Powell stresses caution, hints at September cuts

Federal Reserve Chair Jerome Powell delivered a cautious outlook on Friday regarding possible interest rate cuts, emphasizing the high level of uncertainty that complicates monetary policy decisions.

Powell suggested that conditions “may warrant” lowering rates as the Fed proceeds “carefully.”

“In the context of restrictive policy, the baseline outlook and shifting balance of risks may require an adjustment to our stance,” Powell said at his annual speech in Jackson Hole, Wyoming.

Without directly addressing the White House’s calls for rate cuts, Powell highlighted the importance of the Fed’s independence.

In his long-awaited remarks, Powell pointed to “radical changes” in tax, trade, and immigration policy, saying these shifts appear to be altering the balance between the Fed’s dual mandates of maximum employment and price stability.

He noted that the labor market remains strong and the economy shows “resilience,” though downside risks are rising. At the same time, tariffs pose risks of renewed inflation — a stagflation scenario the Fed must avoid.

With the Fed’s benchmark rate a full percentage point lower than a year ago and unemployment still low, Powell stressed the need for caution:

“Given restrictive policy, the baseline outlook, and a shifting balance of risks, an adjustment to our stance may be warranted,” he added.

This marked his closest signal yet to endorsing a rate cut — something many on Wall Street expect at the next Federal Open Market Committee (FOMC) meeting on September 16–17.

Markets react immediately

Powell’s comments were enough to trigger a sharp market rally.

The Dow Jones Industrial Average jumped more than 600 points following his speech, while the yield on the policy-sensitive two-year Treasury fell by 0.08 percentage points to about 3.71%.

Cryptocurrencies also surged over 3%. Bitcoin rose 3.5% to around $116,740, Ethereum jumped 9% to $4,640, and leading altcoins including XRP and Solana gained 5%. XRP traded above $3, while Solana approached $200. DOGE climbed 7.5%, with BCH and SUI rising by similar amounts.

Since December, the Fed has held borrowing costs at 4.25–4.5%. Policymakers cite tariff-related uncertainty as a reason for caution, arguing that current conditions and restrictive policy give time for further assessment.

Powell also underlined the Fed’s independence:

“FOMC members will base decisions solely on their assessment of the data and its implications for the outlook and balance of risks. We will never depart from this approach,” he said.

His speech also touched on the Fed’s five-year policy review, set against the backdrop of ongoing trade talks between the White House and global partners.

While the Trump administration argues tariffs won’t fuel long-term inflation and justify rate cuts, Powell noted that multiple outcomes are possible. His “reasonable baseline” scenario is that tariffs may result in a one-time increase in price levels rather than sustained inflation — though he acknowledged the high degree of uncertainty.

As we wrote, Crypto market recap: Bitcoin hits 17-day low with Powell remarks in focus

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