The biggest market event this past week was the Jackson Hole Economic Symposium last Friday, August 20th, 2024. At that meeting, Federal Reserve Chairman Jerome Powell spoke and provided the first definitive commentary that clearly signaled interest rate cuts are imminent.

Powell made note of the consistent summer of slowing inflation (after some bumpier readings to start the year) and also mentioned the recent softening in the labor market. Powell was very clear in the direction when he simply said – “The time has come for policy to adjust. ” If they do follow-thru at their mid-September meeting, this will mark the first rate cut since March 2020.

It was evident in the remarks that labor market data has become the primary focus as inflation has moderated (as we wrote about a few weeks back). Powell stated he didn’t see any further inflation coming from elevated wages and noted “We do not seek or welcome further cooling in labor market conditions.”

The question markets are now debating is how large the cuts will be and how fast the cuts will come. Will the Federal Reserve be able to lower them in a steady way, yet still do so in time to achieve a soft landing (ie: unwind the elevate rates without harming the economy)? Or, will the rate cuts have to be done in an emergency-like fashion to save the economy from a recession?

Interest-rate futures markets seem to believe rate cuts will be front-loaded – with the greatest odds of a percentage point worth of cuts over the Fed’s three remaining meetings in 2024, and at least another point of cuts by the end of next year.

Powell was careful to remind markets that data will remain the captain of this ship, as he stated, “The direction of travel is clear, and the timing and pace of rate cuts will depend on incoming data, the evolving outlook, and the balance of risks“

In our view, recession risks and fears over plummeting US growth are also greatly reduced by Powell’s forceful message as it is clear the Fed plans to act aggressively to defend employment and labor markets moving forward.

As one research analyst we follow put it… The Time Has Come (for rate cuts) and markets are on board.

Onward we go,