Markets rallied today following Fed Chair Jerome Powell’s highly anticipated speech at the Jackson Hole conference, which leaned more dovish than many expected. Powell emphasized that risks to the labor market are increasing, with signs of weakening employment and slower labor force growth. He noted that GDP growth has “slowed notably,” reflecting softer consumer spending and broader economic moderation.
On inflation, Powell stated that while tariffs are clearly pushing consumer prices higher, the Fed views these effects as likely short-lived. He said that “a reasonable base case” was that tariffs would result in a “one-time shift in the price level” and reiterated that long-term inflation expectations remain well anchored and consistent with the Fed’s 2% goal.
September Rate Cut Expected
Of note, Powell commented that the shifting balance of risks may warrant adjusting the Fed’s monetary policy. Taken together – and in the face of a weakening labor market and expectations for the inflationary impact of tariffs to be short-lived – Powell’s remarks suggest the Fed may pay greater attention to its employment mandate than its inflation mandate, inferring the Fed may restart rate cuts.
The market now anticipates a high likelihood that the Fed will cut rates at its September Federal Open Market Committee (FOMC) meeting, with additional rate cuts likely through the back end of the year and into 2026.
Bottom line: Powell’s speech reinforces expectations for a September rate cut and signals more rate cuts may be likely, as the Fed seeks to balance slowing growth, employment risks, and inflation pressures.
Markets responded positively, with the S&P 500 Index finishing the day up +1.5%. Small cap stocks showed particular strength, with the Russell 2000 Index up +3.9%.
Investment Implications
Stocks may be supported should the Fed cut rates, particularly at a time when business uncertainty related to trade policy and tariffs has abated. However, we are cautious about current stock market valuations and concentration. Bonds may also be supported in a falling interest rate environment. We believe alternative investments may offer attractive risk-adjusted returns and portfolio diversification benefits over the long term.
Read Our Latest Market Perspectives
At Mission Wealth, we continue to monitor developments closely and adjust portfolios with a focus on diversification and long-term resilience.
Please read our latest Market Perspectives for Q3 2025 here.
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