Markets focused on US Fed chair's Jackson Hole speech

NEW YORK

Markets and investors are eagerly awaiting Federal Reserve Chair Jerome Powell’s much-anticipated speech at an annual gathering of central bank chiefs in Jackson Hole, Wyoming, amid rising expectations of a rate cut in September.

The hope is Powell will offer clues about how deeply and quickly the Fed will begin cutting interest rates in September after it jacked them to a two-decade high to beat inflation.

Futures markets bet on a September interest rate cut following Fed meeting minutes in which a "vast majority" of policy makers expressed support for an interest rate cut if economic data plays out as expected.

Most members of the U.S. Federal Reserve's rate-setting committee said it would likely be "appropriate" to cut interest rates in September when they met last month, the U.S. central bank said on Aug. 21.

"The vast majority observed that, if the data continued to come in about as expected, it would likely be appropriate to ease policy at the next meeting," the U.S. central bank announced in minutes of its July rate decision.

The minutes published on Aug. 21 are fueling expectations that the Fed will implement its first interest cut this cycle when policymakers meet again in September, kicking off its long path to easing monetary policy.

Traders are now waiting with anticipation for remarks today from Powell, hoping for clues about the future path and scope of rate cuts.

Although last month's decision to keep rates on pause was unanimous, the Fed said on Aug. 21 that "several" committee members had observed that recent inflation progress, and rising unemployment, "provided a plausible case for reducing the target range 25 basis points at this meeting or that they could have supported such a decision."

The Fed has held its key lending rate at a 23-year high of between 5.25 and 5.50 percent for more than a year now as it battles to return inflation to its long-term target of two percent.

In recent months, its favored measure of headline inflation has slowed to an annual rate of 2.5 percent, while the unemployment rate has jumped to 4.3 percent -- up sharply from recent prints, but still low by historical standards.

At the rate meeting in late July, "participants saw risks to achieving the inflation and employment objectives as continuing to move into better balance," the Fed said.

Futures traders are now wholly convinced of a September rate cut and are now focused on how big the move could be, according to data from CME Group.

They currently place a probability of more than 60 percent on a smaller, quarter percentage-point cut, and a less-than-40 percent chance of a bigger, half-point cut.