Arincen - U.S. Federal Reserve Chair Jerome Powell, in his speech at the Jackson Hole Economic Symposium, indicated that the central bank might cut interest rates in September if economic conditions warrant it, but he did not provide any confirmation on the timing or magnitude of the cut, leaving markets in a state of cautious anticipation.
Powell explained that the U.S. economy is facing an unusual imbalance in the labor market, where both labor supply and demand have slowed, increasing the likelihood of a rapid rise in unemployment if new shocks emerge.
He added that U.S. tariffs on imports could temporarily push inflation up, but he ruled out the possibility of this increase spiraling into a long-term inflationary spiral as occurred in the 1970s.
The Fed chair noted that current monetary policy remains constrained to combat inflation, but he acknowledged that increasing risks in the labor market may necessitate adjusting this stance soon.
He said, "When our goals contrast between price stability and supporting jobs, we must carefully and precisely balance both sides."
Financial markets' reaction
U.S. markets responded quickly to Powell's hints, with major stock indices rising significantly, as the "Dow Jones," "S&P 500," and "Nasdaq" reached new record levels during Friday's trading.
U.S. Treasury bonds also saw a decline in yields, with the ten-year yield falling, reflecting investor expectations of lower borrowing costs soon.
Impact on gold and commodities
The prospect of interest rate cuts supported gold prices, which rose due to a weak dollar and declining bond yields, enhancing the metal's appeal as a safe haven.
In contrast, oil saw mixed movements, with analysts expecting that accommodative monetary policy will support energy demand in the medium term, despite ongoing concerns about global supplies.
Industrial commodities like copper and silver were also affected, as investors awaited the impact of lower borrowing costs on industrial production and investment.
Future forecasts
Markets remain cautiously awaiting upcoming employment and inflation data, which will determine how quickly the Federal Reserve makes its decisions. Analysts expect that any potential interest rate cuts will be gradual, with care taken to balance price stability and labor market sustainability.
This new economic environment may create opportunities for the rise of stocks, gold, and commodities, but it also carries risks of market volatility if inflationary pressures or employment weakness emerge unexpectedly.