Powell's Jackson Hole speech sets low bar for large cuts to ensure soft landing

Investing.com -- Federal Reserve Chair Jerome Powell delivered a dovish speech at the Jackson Hole Symposium on Friday, signaling that the central bank would be willing to deliver a larger rate cut to ensure a soft landing.

"The time has come for policy to adjust," Powell said, vowing to do "everything we can to maintain labor market strength as the Fed continues to curb inflation toward its 2% target.

The Fed chairman's emphasis on maintaining labor market strength suggest "the Fed is open to 50s if incoming data suggests this may be required to get ahead of a deteriorating balance of risks on the employment side," Evercore ISI said in Friday note.

Powell, however, didn't allude to whether the Fed would cut 25 basis points or 50bps, but said "the direction of travel is clear, and the timing and pace of rate cuts will depend on incoming data, the evolving outlook and the balance of risks."

Still, leaving the door open to larger cuts resembles a "macro-insurance, the Fed macro put, that is also indirectly market-friendly," it added.

The Fed chair said inflation and labor market data "show an evolving situation" as upside risks to inflation cool, but downside risks to employment rise, supporting the case for rate cuts from the current 5.25% to 5.5% range.

While traders believe that a 25bps cut in September is most likely outcome, the odds of a larger 50bps cut increased to 36% from 28% the previous day, according to Investing.com's Fed Rate Monitor Tool.

Powell's comments endorsed the dovish bets on rate cuts seen in the market rate curve, which determines actual borrowing costs in the economy at different tenors, Evercore ISI added, and should "mitigate concerns" about the Fed taking too long to cut rates, or "being behind the curve."

The remarks come ahead of key economic data next week including the PCE price index for July on Friday.