Fed boss Powell recently signaled possible interest reductions in September. Investors hope for new tailwind for the ongoing stock market rally – but there are risks.
• Fed boss Powell interprets possible Interest rate to
• Interest reduction should continue to support stock market rally
• Risks should be kept in mind despite the euphoric mood
How likely is an interest rate reduction in September?
Fed boss Jerome Powell recently indicated at the central bank symposium in Jackson Hole that a weakening labor market situation could soon require interest. “The risk balance seems to be moving,” said Powell, whose term of office will end in May 2026. The job market seems to be stable, “but it is a strange balance that results from a significant slowdown with both the offer and the demand for workers”. However, the youngest US job data for August also failed weaker than expected and now indicate the need for action by the central bank. The Fed has been keeping interest rates for eight months, but Powell emphasized that “downward risks for the employment” are increasing and an adaptation of monetary policy can be necessary, reports CNN.
Powell’s statements fall into a phase of increasing political tensions: President Donald Trump demands massive interest rate cuts, attacks the independence of the central bank and actively searches for a successor for Powell. For his part, however, Powell made it clear that the FED made its decisions exclusively on the basis of economic data and that there are no political demands: “We will never deviate from this approach”.
According to the Marketwatch, investors assume that the US Federal Reserve will reduce interest rates at its meeting on September 17-nine months after the last reduction in December 2024. According to the CME Fedwatch tool, the likelihood for reducing is around 85 percent, and a week ago it was 75 percent. In the meantime, markets no longer speculate about the “OB”, but over the pace and frequency of future steps. “We probably have to experience something completely unexpected to dissuade the Fed from an interest in September. That could look like an exceptionally hot inflation report,” said Mike Reynolds, Vice President for Annex Strategy at Glenmede on a phone call.
Aktienrally continues?
The prospect of lower interest rates should also continue to support the stock markets. If the Fed actually lower the key interest rate, analysts expect a wider rally beyond tech values. Small caps and high -growing titles in particular could benefit because their financing costs are particularly interest -sensitive. In addition, more risky investments come into the focus of investors when interest rates drop. “In general, the further outside you are on the risk curve, the better the system could develop according to the expected interest reduction jumps,” said Steve Sosnick, chief strategist at Interactive Brokers. However, experts also warn that some growth stocks are already very high.
Risks at a glance
Despite the optimism, observers warn of overheating tendencies, Marketwatch continues. Sosnick speaks of a “state of euphoria” that should not last forever. “How long will that stay that way? And will we soon experience resistance from some other members of the Federal Reserve?” He asked. There are also different voices within the FED: Cleveland Fed boss Beth Hammack said that she believes that a reduction in September is premature. In addition, upcoming US economic data such as inflation and labor market reports remain crucial for the final course. “There are many other counter -currents, but at the moment the market is simply in a very positive atmosphere,” said Sosnick.
Editor finance.net