Powell already moved the market; now traders want clearer confirmation
Powell already did the heavy lifting. In Jackson Hole, he gave the strongest indication yet that a September cut could be on the table, and he said the balance of risks appears to be shifting as downside risks to employment rise. Markets read that as a meaningful change in tone.
What traders are testing now is not direction but confirmation. Powell opened the door to a cut, but he stopped short of explicitly endorsing one at the Fed's next meeting. The market is now looking for another dovish step before the September 16-17 meeting, when policymakers are expected to decide.
Why this speech matters more than the last one
The setup is different now because Powell has already framed the debate. His remarks pointed to the current economic situation and near-term outlook as the immediate policy focus, while NPR reported he suggested a marked slowdown in job growth could warrant a downward adjustment in policy.
That leaves traders hunting for confirmation, not revelation. If Powell reinforces that framing again, markets may keep leaning toward a cut. If he turns more cautious, the market may conclude he was signaling intent rather than scheduling a move.
The Fed's dilemma is still intact
The reason Powell has not fully cleared the path is the same tension that has defined his recent messaging. In his August 22 speech, he said the labor market remains near maximum employment and inflation, though still somewhat elevated, has come down a great deal-but that the balance of risks appears to be shifting.
Reuters and the New York Times both reported that Powell highlighted the labor market's vulnerabilities even as inflation accelerates. He also said a "reasonable base case is that the effects will be relatively short lived" from tariffs, while stressing that inflation is still too high.
That is why the bar is tricky. Powell has tilted the balance of risks, but he has not removed the inflation caveat. As PBS reported, he gave the strongest indication yet that the Fed could cut in September, while still describing the setting as a "challenging situation".
What would make a September cut look more credible?
For September to shift from possible to likely, Powell probably needs to do more than repeat that conditions have changed. He would need to make the case that waiting longer carries more risk than acting soon.
A bullish version of that message would: - Reaffirm that labor-market softness is becoming the bigger concern. - Keep the inflation backdrop manageable rather than alarming. - Tie the case for action more explicitly to the upcoming September 16-17 meeting.
A bearish version would: - Re-emphasize that inflation is still above the Fed's comfort zone. - Treat recent labor-market weakness as noisy rather than decisive. - Reinforce that the Fed still needs more data before changing policy.
The real test: intent or scheduling?
Powell has already moved the market once. The question now is whether he can move it again without backtracking.
If he clears that bar, September cut odds can build further. If he misses, the more cautious interpretation will likely win: he was signaling a shift in risk, not locking in a cut.