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Traders Need a Green Light From Powell to Keep Stocks Rallying.

watchlist :: 2025-08-22 :: source - bloomberg

By Jessica Menton

(Bloomberg) -- The stock market’s path to further records faces a potential road block if the Federal Reserve slows its expected pace of interest rate cuts — or abandons the idea altogether.

Wall Street will be focused on Fed Chair Jerome Powell’s speech Friday morning at the central bank’s annual confab in Jackson Hole, Wyoming. The stakes are high, with traders speculating that weakening jobs growth could open the door to a more dovish stance. But the risk is Powell stays tight-lipped after a string of hot inflation prints.

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“Powell is in a really tough spot,” said Jon Hilsenrath, senior advisor at StoneX Group Inc. “He’ll likely acknowledge a September rate cut looks likely, but won’t give any room for a timetable on a succession of cuts because the Fed’s job tackling inflation isn’t done yet.”

This is the challenge for money managers who’ve plunged back into the market since the S&P 500 Index bottomed during the tariff panic in early April. Options traders expect the equities benchmark to swing 0.9% in either direction on Friday, according to data compiled by Piper Sandler & Co.


The Fed chief will probably signal his inclination for a quarter percentage point rate cut in September, but will limit how far he can go in light of the uncertainty surrounding tariffs and inflation, according to Hilsenrath, who became known the “Fed Whisperer” during the 2008 global financial crisis when he was covering the central bank for the Wall Street Journal.

The Fed still has three policy-setting meetings left in 2025, and traders are betting that it will respond to signs of labor weakness by lowering borrowing costs. The problem is the job market is just one side of the central bank’s mandate. Inflation is the other, and it remains stubbornly above the Fed’s 2% target. Whether it can cool rising prices without slowing growth remains an open question.

Interest-rate swaps now show at least half a percentage point of rate reductions by the end of the year, with the odds of a September cut at 72%, down from roughly 100% just last week when inflation data showed a widening gap between consumer and producer prices.

The Fed’s Jackson Hole symposium usually isn’t a big catalyst for the stock market unless there are big shifts in monetary policy. Since 2000, the S&P 500 has climbed 0.4% on average in the week following the gathering, data compiled by Bloomberg Intelligence show.

That said, Powell has used the occasion to make some market-moving policy pronouncements in recent years. Last year, for example, he said “the time has come” for the central bank to begin lowering rates, which sent the S&P 500 rallying over 1% that day. And in 2022, he warned that the Fed would need to keep monetary policy restrictive to battle inflation, sending stocks plunging 3.4% that day and down another 3.3% in the week following.


This time, however, Powell is speaking without having all the data the Fed needs to determine what to do with interest rates. The central bank’s decision will also rely heavily on figures such as the August jobs report due on Sept. 5 and the consumer price index reading on Sept. 11.

“Jackson Hole is shaping up to be inconsequential,” Andrew Tyler, head of global market intelligence at JPMorgan, wrote in a note to clients Wednesday.

The central bank’s preferred measure of underlying US inflation — the so-called core personal consumption expenditures price index — advanced 2.8% in June from a year earlier as tariffs boosted prices for imported goods like household furniture and recreation products. The next report on core PCE, due on Aug. 29, is forecast to climb 2.9% in July from a year earlier.

“Powell has done this balancing act before,” said Patrick Fruzzetti, portfolio manager at Rose Advisors. “I don’t expect him to signal aggressive cuts or to be any more hawkish.” He’s using any dips to buy shares of consumer staples companies that tend to have comparatively low valuations and offer robust dividends.

“My expectation is Powell will probably signal policymakers are still prioritizing inflation over job growth right now,” Fruzzetti added. “So I’m not going to dramatically change my stock positioning yet.”

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