Opening the door to a September cut

Markets rallied last week following Chair Powell’s speech in Jackson Hole, Wyo., which was largely interpreted as a hint of  a rate cut in September. Stocks surged, Treasury yields fell, and the risk premium in US corporate bonds remained near multi-decade lows.

Among Powell’s notable remarks, the one that seemed to attract most attention was that the “shifting balance of risks may warrant adjusting our policy stance.” Most observers took this as a lean in the direction of a September rate cut. While discussing the broader economy, he noted that the labor market remains in balance, but the balance reflects both slowing supply and demand, which heightens downside risks that could accelerate quickly. On inflation, he acknowledged that price measures have increased but suggested these pressures could be one-time.

Economic data last week included the third consecutive increase in initial jobless claims. While the latest figure of 235,000 is still not at alarming levels, the number of individuals continuing to receive benefits climbed to the highest point of 2025 and the worst since November 2021. This trend speaks to Powell’s softening view of employment and suggests workers are struggling to re-enter the job market.

Last week contained mixed housing data. Existing home sales rebounded 2% month-over-month in July, outperforming expectations for a decline. However, the median sales price fell slightly compared to the prior month and was flat year-over-year. The housing market seems to be stuck in neutral, weighed down by elevated mortgage rates and sticky prices. It’s yet to be determined how much relief potential borrowers will feel if the Fed cuts. Ultimately, mortgage rates are determined relative to longer-dated US Treasury yields rather than fed funds. They, in turn, are determined by the market and reflect several factors, including monetary policy, fiscal policy and geopolitics. So, while yields across all Treasury maturities slipped on anticipation of a cut, there’s no guarantee these levels will be sustained.