Federal Reserve Chairman Powell conveyed a clear message to the market in a significant speech on Friday, indicating that "the time for a rate cut has come."

According to CC Finance APP, Powell stated at the Federal Reserve's annual symposium in Jackson Hole, Wyoming, "the time for policy adjustment has arrived. The direction forward is very clear, while the timing and pace of rate cuts will depend on upcoming data, evolving outlook, and balance of risks."

Powell's speech comes over three weeks before the Federal Reserve meeting on September 17th and 18th, during which the Fed may announce its first rate cut since 2020. In his speech, Powell acknowledged the recent weakness in the labor market and stated that the Fed does not want to further cool off the labor market conditions.

The July jobs report released earlier this month shocked the market, as the data showed the U.S. economy added only 114,000 jobs last month, with the unemployment rate rising to 4.3%, the highest level since October 2021. Meanwhile, data earlier this week indicated that as of March, employment in the U.S. economy was down by 818,000 compared to previous reports, suggesting that labor market conditions over the past year may have been overestimated.

Powell said, "The labor market does not appear likely to be a source of inflationary pressure in the short term." Prior to Powell's speech, investors were already largely anticipating a rate cut by the Fed next month, with the market betting twice as much on a 25 basis point cut compared to a 50 basis point cut.

He stated, "Nearly four and a half years after the outbreak of the COVID-19 pandemic, pandemic-related economic distortions are gradually fading. Inflation has significantly declined... Our goal is to restore price stability while maintaining a strong labor market, avoiding sharp increases in unemployment rates during times of unstable inflation expectations. Although the task is not yet fully accomplished, we have made significant progress in achieving this goal."

At the 2022 Jackson Hole Conference, Powell directly assessed the economic outlook at the time and emphasized the need for further rate hikes.

He recalled, "Two years ago on this stage, I discussed that addressing inflation could bring some pain, such as higher unemployment rates and slowed economic growth. Some believed that controlling inflation required experiencing a recession and prolonged high unemployment rates. I expressed our unconditional commitment to fully restore price stability and will continue until the task is complete."

Friday's speech indicated that this task is actually nearing completion.

Powell summarized, "Overall, recovery from the pandemic, our efforts to suppress total demand, and the anchoring of expectations have seemingly put inflation on a sustainable path towards our 2% target."

With the expectations nearly confirmed that the Fed will cut rates next month, the US dollar plummeted, triggering a rebound in major global currencies. Bloomberg's USD index fell by 1%, dropping to the lowest level since January this year, and the USD index is set to fall for a fourth consecutive week, making it the longest losing streak since April 2023. Jane Foley, FX Strategy Director at Rabobank in London, stated: "Powell clearly stated that the Fed's focus has shifted from inflation to balancing its dual mandate." She added, "This speech did not object to the possibility of a larger Fed rate cut in September."

Following Powell's speech, the probability of a 50 basis point rate cut by the Fed in September increased. The probability of a 25 basis point rate cut by the Fed in September is 67.5%, while the probability of a 50 basis point rate cut is 32.5%. The cumulative probability of a 50 basis point rate cut by November is 43%, with a 75 basis point rate cut at 45.2%, and a 100 basis point rate cut at 11.8%.

Reporter Nick Timiraos, known as the "Fed's megaphone," posted on social media that today's speech indicates Powell's policy shift is complete, showing a fully dovish stance. Two years ago during the same period, he indicated that the Fed would accept an economic downturn as the cost of restoring inflation.

Standard Chartered Bank's Global FX Research and Macro Strategy Director, Steve Englander, stated that the market's reaction, including a weakened US dollar and slightly lower bond yields, is broadly correct. Powell did not say, "Yes, we will start an easing cycle with three 50 basis point rate cuts." What he did was very attentive to the fact that the inflation target is within reach. They are worried about the labor market, saying there is no need for further weakening of the labor market. Therefore, without giving a timetable, this commentary implies the door has been opened for a 50 basis point rate cut at some point. We still do not believe that a 50 basis point cut will be the first move, but if the labor market continues to weaken, it may come soon.

Bank of America economists pointed out that the Fed's focus on cooling the US labor market still requires a 25 basis point rate cut in September, rather than 50 basis points. Bank of America said that despite Powell's dovish tone, "we do not believe he has opened the door to a 50 basis point cut." "Instead, he discreetly supports a gradual reduction in interest rates." If the risk of an economic recession increases, a larger reduction will occur. "A very weak employment report could help us achieve this goal, but the decline in initial jobless claims suggests that this should not be the baseline situation."