Good morning, traders,
Traders have been waiting months for a clean signal from the Fed, and this past Friday, we got the closest thing yet.
Speaking at the annual economic symposium in Jackson Hole, Wyoming, Fed Chair Jerome Powell didn’t wave the white flag on inflation, but he finally admitted something big is shifting.
In the much-anticipated speech, he said “the baseline outlook and the shifting balance of risks may warrant adjusting our policy stance.”
Translation: The Fed is now just as worried about breaking the economy as it is about cooling inflation.
And for markets, that changes the game.
Powell didn’t promise a rate cut in September — but he didn’t rule it out either.
In fact, he opened the door wide enough that futures traders stampeded through it.
As of Friday afternoon, the odds of a September cut jumped to more than 90%.
And by year-end, the market’s now expecting at least two cuts.
Let’s break this down.
Why Powell’s Tone Matters
He’s been slow-playing the rate story for over a year, staying “data dependent,” holding the line, repeating the script.
But on Friday, Powell admitted something new: The labor market — once the strongest pillar in the house — isn’t so strong anymore.
Job growth is slowing. Unemployment is ticking up. Immigration has dried up, which means the economy needs fewer new jobs just to keep things stable.
That’s not something the Fed can ignore.
At the same time, inflation is still running hot — 2.7% overall, 3.1% core — but Powell pointed the finger at tariffs.
And if that pressure is temporary, it gives the Fed even more cover to cut.
He basically told us: “Look, we’re still watching inflation, but we’re watching jobs and growth just as closely now.”
The Market Heard Him
On Friday, the S&P 500 popped over 1.5%. Bonds rallied. The 2-year yield dropped like a rock.
Even the dollar backed off.
It was the market betting Powell will cut, and soon.
The FOMC still has three meetings left for the year, and three chances to throw traders a bone: September (16–17), October (28–29), and December (9–10).
The only thing that could stop this train would be a big upside surprise in jobs or inflation between now and the next meeting.
What Should Traders Do Now?
This is where experience counts.
You don’t chase a rally like Friday’s. You let it breathe.
You watch how the market settles early this week — and you prep your scenarios.
Here’s how I’m thinking about it:
- Short-term bullish bias in equities — as long as rate cut expectations hold. But keep your hedges tight. One hot CPI print could reset the board.
- Stay long bonds — particularly on the short end. If Powell cuts, 2-year yields are still too high. That’s a trade.
- Watch the dollar — If the Fed does cut, the dollar could weaken fast, especially against risk-sensitive currencies.
- Tariff headlines matter now — Powell put them on the inflation map. That means every trade war headline could swing CPI expectations and rate odds.
‘Just Take It’
I spent a decade working under Ace Greenberg on Wall Street, and one of his favorite sayings was: “If the market’s giving you a gift, don’t ask questions, just take it.”
Right now, Powell is gift-wrapping the possibility of a Fed pivot.
It’s not confirmed and it’s not locked in.
But the door’s open — and in this business, you don’t wait for an engraved invitation.
The Fed isn’t here to save us. But they’re scared enough to blink.
That’s all we need.
Stay street smart,
Jeff Zananiri
*Past performance does not indicate future results
