Powell Hints at September Rate Cut as Job Market Risks Rise

GLOBAL MOOD: Risk-On
Drivers: Powell’s Jackson Hole Speech, Russia-Ukraine Peace Uncertainty

Asian markets kicked off in risk-on mode, tracking Wall Street’s rally after Fed Chair Jerome Powell signaled the door is open for September rate cuts at Jackson Hole. Traders now price in an 84% chance of easing, though officials remain cautious, citing inflation risks from tariffs. Focus shifts to upcoming US inflation data for confirmation.

TODAY’S WATCHLIST 
 - RBI Malhotra’s Speech at FIBAC, 
 - US building permits data

THE BIG STORY
Federal Reserve Chair Jerome Powell on Friday indicated the possibility of an interest rate cut at the Fed’s September meeting, highlighting rising risks to the US job market while emphasising that inflation pressures remain a concern. Speaking at the central bank’s annual Jackson Hole conference in Wyoming, Powell noted that although policy remains in restrictive territory, the shifting balance of risks may justify adjusting the Fed’s stance.

Investors quickly increased expectations for a 25bps rate cut at the September 16-17 meeting, prompting some analysts to revise forecasts for half a percentage point of reductions by the end of the year from the current 4.25%-4.50% range. Powell underscored the importance of upcoming employment and inflation reports, pointing to a “curious balance” in the labor market characterised by slowing supply and demand for workers. He also warned that while tariff-driven price increases may fade, they could create a more persistent inflationary trend, requiring careful monitoring.

Data Spotlight
The US central bank’s balance sheet decreased slightly to $6.62 trillion as of August 20, down from $6.64 trillion the previous week. Since 2002, the balance sheet has averaged $3.87 trillion, reaching an all-time high of $8.97 trillion in April 2022 and a record low of $712.81 billion in January 2003. 

Takeaway: The shrinking balance sheet indicates the Fed is steadily reducing liquidity, supporting its strategy to manage inflation while preparing markets for potential rate cuts.

WHAT HAPPENED OVERNIGHT

• US Stocks rallies as Powell signals near-term rate cut
  
  • Dow Jones hit a record closing high on Friday
  • Intel surged 5.5% on news of a White House plan to acquire a 10% stake.
    
    

• US Treasury yields drops on Powell’s rate-cut signal
  
  • The yield on the 10-year US Treasury fell nearly 10 bps to 4.26%.
  • Markets raised expectations for further easing in the fourth quarter.
    
    

• US dollar slides after Powell hints at possible rate cuts
  
  • US Dollar Index fell 0.89% to 97.73, retreating from pre-Jackson Hole levels around 98.7.
  • Markets reacted to Powell’s commentary on tax, trade, and immigration policies impacting economic outlook.
    
    

• Crude oil prices steady amid Ukraine peace deal uncertainty
  
  • Brent crude oil settled at $67.73, up 0.09% on Friday, while WTI crude closed at $63.66, up 0.22%.
  • Market remains cautious due to uncertainty around a potential Russia–Ukraine peace deal.

Day’s Ledger
Economic Data

• German August Ifo Business Climate Index
• US July building permits data
  

Corporate Actions

• Earnings: M&B Engineering, Valecha Engineering, and Godha Cabcon & Insulation
• Fedbank Financial Services to consider fund raising

Policy Events

• RBI Governor Malhotra to speak at FIBAC
• German Buba Balz speaks

TICKERS TO WATCH

• ACME SOLAR board to discuss equity fundraising plan on Wednesday
• ADANI PORTS to build new logistics park in Kochi with fresh investment
• AKUMS DRUGS partners Zambia govt for JV, secures fresh supply orders
• BRIGADE ENTERPRISES launches new housing towers in Bengaluru, eyes strong sales
• CG POWER wins stay on tax demand, to clear deposit in phased tranches
• Fitch upgrades MUTHOOT FINANCE foreign and local currency ratings to BB plus
• JSW STEEL receives demand notice from Odisha govt over mining dues
• NTPC GREEN’s solar project in Bhuj, Gujarat to go live on Sunday
• RELIANCE arm Nauyaan Tradings buys remaining stake from Welspun Corp
• RBI clears Sumitomo Mitsui plan to acquire stake in YES BANK
• TITAGARH RAIL bags order from Banaras Locomotives Works

MUST READ: 

• How India’s Great Urban Decentralisation Experiment Has Stalled
• Powell’s Caution, CBO’s Fantasy and Illusions That Move Markets, Budgets
• Getting credit flow where it matters most
• Does Climate Change Matter for Monetary Policy Decisions?
• GST Reboot Risks Fiscal Strain More Than it Promises Growth
• Tyre industry set for 7-8% growth in FY26 on strong replacement demand
• China's market bull run defies slowdown fears, stoking bubble risks
• Rising risk for the US economy: A Job Market that is just ‘Meh’
• India’s Betting-App Ban Will Stoke Money Laundering
• Trump's redistricting push could bring decades of Republican rule to the US House

See you tomorrow with another edition of The Morning Edge.

Have a great trading day.

GST Reboot Risks Fiscal Strain More Than it Promises Growth

India’s GST reboot is being pitched as a Diwali bonanza. But will lower tax rates truly boost demand, or just stretch state finances already under strain? 

Srinivasa Nagarjuna Rao writes, the proposed rationalisation could cut revenues by 10–15 bps of GDP, even as consumer sentiment and FMCG sales soften. The real test is whether this “festive reform” delivers growth or only fiscal stress.