Brokerages See September Fed Rate Cut as Likely After Powell's Jackson Hole Remarks

Expectations of a U.S. interest rate cut in September have strengthened sharply after Federal Reserve Chair Jerome Powell signaled a greater focus on labor market risks during his remarks at the annual Jackson Hole symposium.

Powell described the current economic situation as unusual, warning that employment could deteriorate faster than expected. "This unusual situation suggests that downside risks to employment are rising," he said, cautioning that the risks could quickly manifest through layoffs and rising unemployment. His comments marked a shift in the Fed's balance of priorities, with more weight now being placed on the possibility of a weakening labor market.

Major brokerages quickly adjusted their forecasts in response. Barclays, which had previously penciled in a rate cut much later, brought forward its call to September 2025, arguing that Powell's remarks introduced "an easing bias" into the Fed's outlook. BNP Paribas also reversed its longstanding view that rates would be held steady, now predicting cuts in both September and December. "Powell made (it) clear that the Fed intends to deliver a ‘fine-tuning' rate cut in September unless the data dictates otherwise," BNP economists led by Calvin Tse wrote in a client note.

Deutsche Bank and Macquarie made similar revisions, each forecasting quarter-point cuts in both September and December. The shift highlights how Powell's speech reshaped expectations across much of Wall Street, even among institutions that had previously assumed the Fed would remain on hold through the fall.

Still, some large U.S. firms are more cautious. Morgan Stanley and Bank of America are holding back from calling for a September cut, though they acknowledged it could happen if upcoming inflation and labor data confirm further weakening in the economy. Goldman Sachs and J.P. Morgan, meanwhile, reaffirmed their earlier forecasts for a September reduction, putting them in line with the growing consensus.

Markets moved swiftly after Powell's comments. The CME FedWatch Tool showed that traders were pricing in an 87% chance of a quarter-point cut at the September policy meeting, up from 75% before the speech. The Federal Open Market Committee will meet on September 16 and 17, when policymakers will decide whether the time has come to lower borrowing costs.