How many more interest-rate cuts are coming? Here’s what you should be watching in Jerome Powell’s big speech.
Twas the day of the Fed rate-cut decision, and all across Wall Street
Not a trader was stirring, except to grab a Zyn from their seat.
Everyone was waiting to hear Fed Chair Jerome Powell speak
And hoping his outlook for rate cuts won’t be so bleak.
It’s been almost nine months since the Federal Reserve last gave investors some relief in the form of an interest-rate cut. That streak is set to end this afternoon, as the vast majority of market watchers expect a standard 25 basis-point cut.
What is up for debate, however, is what Fed Chair Jerome Powell will say about the central bank’s approach to interest rates going forward.
The Fed is set to meet again at the end of October and in mid-December, leading to plenty of speculation about how many more cuts we can expect this year. Most experts are split between one additional rate cut or two.
BI’s Jennifer Sor has a full breakdown on JPMorgan’s analysis of the different possible scenarios and how the market might react. Sofi’s head of investment research also laid out three sectors that could come away the biggest winners.
It’s worth noting that even “good news” (more rate cuts are coming) could ultimately be bad news for stocks. Remember: If the Fed gets aggressive with rate cuts, that’s a sign it believes the economy isn’t in good shape, which could give investors pause. It could also reignite inflation.
I’m also sorry to say there won’t be an immediate impact from the long-awaited rate cut for most of us. A single, standard cut won’t significantly drop mortgage or credit-card rates since the move has basically been priced in already, writes BI’s Allie Kelly and Madison Hoff.
With so much riding on Powell’s speech, what should you look out for?
I spoke to Aditya Bhave, Bank of America’s senior US Economist, about the key things to watch. Here’s what he flagged:
The dot plot: The first thing to keep an eye on is the Fed’s updated dot plot, which is a chart compiling Fed officials’ year-end projections for interest rates. The last dot plot, which was published in June, had a median projection of two rate cuts in 2025.
A shift of the median dot to three cuts in 2025 would signal the Fed’s loosening up its policy. However, if the median dot remains unchanged, that’s a sign the central bank is taking a more cautious route, Bhave told me.
The speech: If the dot plot disappoints, fear not. There’s always Powell’s speech! The Fed chair has been clear his focus is on two things: the job market and inflation. How he categorizes both in his speech will offer up some big clues on where rates could be headed.
Labor market: Any discussion of a supply slow down or how unemployment hasn’t increased likely means Powell’s taking a hawkish, or more cautious, approach to cutting rates. But if Powell highlights demand weakness, the increase in jobless claims, or a slowdown in job growth, it’s game on for more cuts.
Inflation: If Powell mentions the “stickiness” of inflation and dismisses the impact of tariffs, Bhave said that could spell trouble for people hoping for more cuts. However, if he points to inflation being impacted by the one-off nature of tariffs, today’s cut could be the start of something bigger.