From 72% to 91%: The Speech That Rewrote September’s Playbook

At this year’s Jackson Hole Economic Symposium, Jerome Powell delivered a speech that instantly recalibrated the market’s outlook for U.S. monetary policy. While avoiding any explicit commitment to rate cuts, the Fed Chair adopted a tone that traders interpreted as noticeably dovish, emphasizing growing vulnerabilities in the labor market and downplaying inflationary pressures stemming from tariffs. By framing tariff-driven price increases as temporary “level adjustments” rather than structural inflation, Powell left the door wide open for policy easing in the coming months, particularly at the September FOMC meeting.

Before Powell took the stage, market-implied probabilities from the CME FedWatch tool indicated roughly a 72 to 75 percent chance of a 25-basis-point rate cut at the upcoming meeting. Within minutes of his remarks, that probability surged beyond 90 percent, marking a dramatic repricing of nearly 20 percentage points. This abrupt shift demonstrates just how sensitive traders remain to any hint of flexibility from the Fed.

Powell’s speech revolved around three key ideas: the labor market is showing signs of fatigue on both the demand and supply sides, inflationary pressures tied to tariffs are not self-sustaining, and every policy decision will remain firmly data-dependent. By reiterating that the Federal Reserve is insulated from political influence and committed to an evidence-based approach, Powell reassured investors that the trajectory of rates will hinge on two critical indicators arriving before the September meeting : the Nonfarm Payrolls report on September 5 and the following week’s CPI release. These numbers could either cement the case for easing or complicate it significantly.

The immediate market reaction spoke volumes. Treasury yields declined, particularly at the short end, reflecting growing confidence in an imminent policy shift. Equity markets rallied, extending risk-on sentiment as lower borrowing costs became more likely. Meanwhile, the U.S. dollar weakened against major currencies like the euro, mirroring the dovish pivot embedded in Powell’s language.

Looking ahead, the baseline expectation remains a 25-basis-point cut at the September meeting, but that outcome is not guaranteed. A softer labor print and inflation near or below expectations would reinforce the current narrative, while a strong CPI surprise could challenge it, forcing the Fed to hold steady and potentially triggering volatility across equities, bonds, and currencies.

For traders, this environment is a textbook case of uncertainty where preparation matters as much as prediction. The shift in probabilities—from 72 percent to over 90 percent—underscores how quickly sentiment can change on a single speech, but the real catalysts lie in the upcoming data. Navigating this landscape requires disciplined scenario planning, robust risk management, and tactical execution—principles that stand at the core of what we teach and simulate every day at Trading Battle Academy.