Powell Signals Rate Cuts as Soon as September, Sparks Bond Rally

Federal Reserve Chair Jerome Powell hinted at potential rate cuts as early as next month, citing labor-market risks that may necessitate a policy adjustment. Treasury yields fell sharply, with short-dated notes leading the decline—the two-year yield dropped 10 basis points to 3.7%, nearing early-August lows. Markets priced in an 80% chance of a September cut, though traders remain cautious ahead of upcoming employment and inflation data.

The Fed’s balancing act between a softening job market and tariff-driven inflation risks kept bond markets on edge. Swaps now reflect expectations of two quarter-point reductions by year-end. "Powell solidifies market expectations of a cut in September," said Gregory Peters of PGIM Fixed Income, emphasizing the uncertainty of economic data in the coming months.

Upcoming Treasury auctions and the Fed’s preferred inflation gauge will test investor appetite. While cryptocurrencies weren’t directly mentioned, the prospect of looser monetary policy typically fuels risk assets—a tailwind for BTC, ETH, and altcoins if liquidity conditions improve.