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‘The time has come for policy to adjust’

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2 years ago

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Fed Chair Powell indicates interest rate cuts ahead: 'The time has come for policy to adjust'

Federal Reserve Chair Jerome Powell laid the groundwork Friday for interest rate cuts ahead, though he declined to provide exact indications on timing or extent.

“The time has come for policy to adjust,” the central bank leader said in his much-awaited keynote address at the Fed’s annual retreat in Jackson Hole, Wyoming. “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.”

Watch live: Fed Chair Jerome Powell speaks from Jackson Hole conference

With markets awaiting direction on where monetary policy is headed, Powell focused as much on a look back at what caused the inflation that led to an aggressive series of 13 rate hikes from March 2022 through July 2023.

However, he did note the progress on inflation and said the Fed can now turn its focus equally to other side of its dual mandate, namely to make sure the economy stays around full employment.

“Inflation has declined significantly. The labor market is no longer overheated, and conditions are now less tight than those that prevailed before the pandemic,” Powell said. “Supply constraints have normalized. And the balance of the risks to our two mandates has changed.”

He vowed that “we will do everything we can” to make sure the labor market says strong and progress on inflation continues.

Stocks added to gains as Powell began to speak while Treasury yields dropped sharply . Traders maintained a 100% chance of at least a quarter percentage point rate cut in September and raised the odds of a potential half-point reduction to about 1-in-3, according to the CME Group’s FedWatch.

“This was a valedictory of essentially Chair Powell turning the page, saying the mission, which has been focused on inflation for the last two years, has been successful,” economist Paul McCulley, the former Pimco managing director, said on CNBC’s “Squawk on the Street.”

Sees progress towards goals

The speech comes with the inflation rate consistently drifting back to the Fed’s 2% target though still not there yet. A gauge the Fed prefers to measure inflation most recently showed the rate at 2.5%, down from 3.2% a year ago and well off its peak above 7% in June 2022.

At the same time, the unemployment rate has slowly but consistently climbed higher, most recently at 4.3% and in an area that otherwise would trigger a time-tested indicator of a recession. However, Powell attributed the rise in unemployment to more individuals entering the workforce and a slower pace of hiring, rather than a rise in layoffs or a general deterioration in the labor market.

“Our objective has been to restore price stability while maintaining a strong labor market, avoiding the sharp increases in unemployment that characterized earlier disinflationary episodes when inflation expectations were less well anchored,” he said. “While the task is not complete, we have made a good deal of progress toward that outcome.”

Markets are expecting the Fed to start cutting in September, though Powell made no mention of when he thinks policy easing will begin. Minutes from the July open market committee meeting, released Wednesday, noted that a “vast majority” of officials believe a September cut will be appropriate so long as there are no data surprises.

“He’s pretty dovish. He bought the option to do whatever he needs to do next month, which is clearly an ease,” said Joseph LaVorgna, chief economist at SMBC Nikko Securities. “I don’t think the bar for 50 [basis points] is particularly high.”

In addition to assessing the current state of play, Powell took considerable time in the speech to evaluate what led to the surge in inflation — hitting its highest level in more than 40 years — as well as the Fed’s policy response and why price pressures have eased without a recession.

‘Good ship Transitory’

When inflation first began to rise in early 2021, he and his colleagues — as well as many Wall Street economists — dismissed it as “transitory” and caused by Covid-related factors that would abate.

“The good ship Transitory was a crowded one,” Powell quipped to laughter form attendees, “with most mainstream analysts and advanced-economy central bankers on board. I think I see some former shipmates out there today.”

When it became clear that inflation was spreading from goods to services, the Fed pivoted and began hiking, ultimately adding 5.25 percentage points to its benchmark overnight rate that had been around zero following emergency cuts in the early pandemic days.

The rise in inflation, Powell said, was “a global phenomenon,” the result of “rapid increases in the demand for goods, strained supply chains, tight labor markets, and sharp hikes in commodity prices.”

He attributed confidence in the Fed and well-anchored expectations that inflation ultimately would ease to the economy avoiding a sharp downturn during the hiking cycle.

“The FOMC did not flinch from carrying out our responsibilities, and our actions forcefully demonstrated our commitment to restoring price stability,” he said. “An important takeaway from recent experience is that anchored inflation expectations, reinforced by vigorous central bank actions, can facilitate disinflation without the need for slack.”

Powell added that there is still “much to be learned” from the experience.

“That is my assessment of events. Your mileage may differ,” he said.

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Finance

S&P 500 Outperforms Amid Strong Corporate Earnings as Treasury Yields Cap Equity Multiples

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18 hours ago

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September 5, 2026

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S&P 500 Outperforms Amid Strong Corporate Earnings as Treasury Yields Cap Equity Multiples

Financial markets opened September on a firm footing following a solid performance in August, where the S&P 500 gained 2.6% and the tech-heavy Nasdaq Composite rose 3.9%. Corporate earnings across major index constituents showed impressive momentum, with S&P 500 year-over-year earnings growth topping historic averages. However, despite robust corporate balance sheets, equity market valuations face headwinds as benchmark 10-year Treasury yields remain elevated near 4.75%.

The current financial environment is characterized by a strong divergence between corporate earnings resilience and bond market pressure. Enterprise technology leaders, financial institutions, and consumer sectors reported strong profit margins, benefiting from operational efficiency gains and disciplined cost management. Yet, institutional investors remain cautious about expanding price-to-earnings multiples when risk-free benchmark bond yields offer yields near 4.7%.

Fixed income markets continue to reflect restrictive monetary conditions. The broader aggregate bond market recorded flat total returns year-to-date, while fixed income yields—such as 30-day SEC yields on core bond funds—stayed above 4.6%. This yield profile provides institutional and retail investors with meaningful cash flow returns without taking on equity market downside risk, creating a competitive alternative for institutional capital allocation.

Portfolio managers and investment strategists recommend a disciplined, quality-oriented approach entering the final quarter of 2026. Rather than chasing speculative momentum, capital flows are favoring companies with strong cash flow generation, low debt-to-equity ratios, and robust pricing power capable of withstanding elevated input costs.

Why This Information Matters
The tension between strong corporate earnings and elevated bond yields directly impacts portfolio allocations and retirement wealth. Individual investors and wealth managers must balance equity market participation with fixed-income yield opportunities, ensuring portfolios are diversified against sudden valuation adjustments caused by fluctuating benchmark interest rates.

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Finance

Treasury Bond Volatility Forces Bessent to Double Debt Buyback Size as Yields Swing

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2 weeks ago

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August 26, 2026

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Bessent

A turbulent week in the U.S. Treasury market prompted the Treasury Department to sharply increase the size of its long-term debt buyback program, as bond prices fell even while equity markets pushed toward record highs. The divergence has drawn attention from fixed-income strategists who see it as a signal of underlying investor unease about federal borrowing levels.

What Happened This Week

U.S. Treasury Secretary Scott Bessent told CNBC on Thursday, August 20, 2026, that the Treasury had doubled the size of its long-term debt buyback operations, moving from roughly $2 billion to at least $4 billion per operation. Bessent indicated the figure could climb further, saying “we’re going to increase the size of the buyback,” and noted the accelerated pace could exceed the announced $4 billion threshold per issue.

Buybacks allow the Treasury to repurchase outstanding government bonds directly from the market, which can help support prices and dampen yield volatility during periods of stress. The expanded program came as stocks staged a late-week recovery: the S&P 500 and Russell 2000 both advanced on Friday, August 21, even as Treasuries logged mild losses, according to Bloomberg market data.

Why Bond and Equity Markets Are Diverging

Capital.com senior market analyst Daniela Hathorn described the week’s dynamic as markets “ending the week on a softer tone after the relative calm of early August was disrupted by renewed pressure in global bond markets, another rise in oil prices, and growing uncertainty around the Federal Reserve’s next move.” She noted that higher long-term borrowing costs are increasingly challenging elevated equity valuations, even as U.S. equities pull back modestly from record highs.

This divergence — equities near record levels while bonds sell off  is unusual and reflects two different sets of investor concerns. Equity investors have remained focused on corporate earnings strength, particularly from large technology companies ahead of Nvidia’s closely watched August 26 earnings report. Bond investors, by contrast, are more directly exposed to concerns about the scale of federal borrowing, highlighted this week by the national debt crossing the $40 trillion threshold for the first time.

The Fed and Treasury “Working in Opposite Directions”

Wilmington Trust senior bond portfolio manager Wil Stith told Yahoo Finance that current conditions reflect “the Fed and the Treasury basically working in sort of opposite directions,” adding that the imbalance will likely require the Federal Reserve  which he described as having “the larger sandbox”  to adjust the federal funds rate rather than relying on Treasury market interventions alone to manage yields.

Notably, the bond market’s reaction to the Treasury’s buyback expansion was relatively muted; strategists described the move as being largely absorbed without a major rally, suggesting the underlying pressure on yields stems from factors, such as inflation persistence and debt sustainability concerns, that a buyback program alone cannot resolve.

What Comes Next

Markets are now looking to two major events in the days ahead: Nvidia’s earnings report on Wednesday, August 26, and the Federal Reserve’s Jackson Hole Economic Symposium, running August 27-29. This will be the first Jackson Hole gathering under new Fed Chair Kevin Warsh, whose public communication style and policy signals remain less established than his predecessors’, according to market commentary from Regards of Wall Street.

For investors, the key metrics to watch are the size and frequency of future Treasury buyback operations, movements in the 10-year Treasury yield, and any policy signals from Warsh’s keynote address. Continued yield volatility alongside record equity valuations would suggest the market imbalance identified this week has not yet been resolved.

 

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Finance

Cross-Border Settlement Innovation and Real-Time Payment Architecture

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3 weeks ago

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August 15, 2026

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The global banking system is undergoing a comprehensive modernization of cross-border payment infrastructure. Driven by real-time settlement networks, open banking APIs, and interoperable messaging standards, financial institutions and multinational corporations are eliminating multi-day delays and reducing transaction costs associated with legacy international wire transfers.

Transition to Real-Time Gross Settlement Networks
Historically, international business-to-business (B2B) payments relied on complex correspondent banking relationships involving intermediary fees and processing delays. In 2026, the widespread adoption of ISO 20022 messaging protocols alongside interconnected Real-Time Gross Settlement (RTGS) systems allows direct, end-to-end processing of cross-border transfers.

Commercial banks are providing corporate clients with continuous, 24/7 payment clearing capabilities. Real-time transaction confirmation and automated FX rate locking allow international businesses to settle cross-border trade obligations within minutes, significantly reducing counterparty risk.

Central Bank Digital Currency (CBDC) Interoperability
Wholesale Central Bank Digital Currency (CBDC) pilot initiatives are reaching operational maturity across several key financial centers. Collaborative multi-CBDC platforms enable participating central banks and commercial institutions to settle foreign exchange and international trade transactions directly on shared distributed ledgers.

These wholesale digital currency networks eliminate traditional clearinghouse delays and minimize foreign exchange slippage. Enterprise treasury departments benefit from enhanced liquidity management, as cross-border cash balances can be deployed and repatriated instantaneously.

Corporate Treasury Transformation
For enterprise treasurers, instant cross-border settlement transforms cash management strategies:
– Working Capital Optimization: Reduced transaction float allows companies to lower precautionary cash reserves and optimize short-term liquidity investments.
– Automated Reconciliation: Enriched data formats embedded in ISO 20022 payment messages streamline automated general ledger posting and invoice matching.
– Reduced Processing Overhead: Account-to-account (A2A) real-time clearing bypasses costly intermediary correspondent banking fees.

Strategic Financial Priorities
1. Upgrade Treasury Systems: Ensure internal core enterprise software supports real-time ISO 20022 payment messaging standards.
2. Leverage Instant Clearing Rails: Utilize direct payment networks to lower cross-border transaction fees and eliminate settlement delays.
3. Evaluate Multi-Currency Liquidity: Modernize liquidity management frameworks to capitalize on 24/7 real-time settlement capabilities.

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