Powell Signals Rate Cuts Driving 1.63% S&P 500 Surge

U.S. financial markets responded with enthusiasm following Federal Reserve Chair Jerome Powell’s speech at the Jackson Hole Economic Symposium on August 22, 2025, where he hinted at potential rate cuts. The remarks, perceived as a more dovish shift in the Fed’s stance, triggered immediate gains in major equity indices and a decline in Treasury yields. Investors revised their expectations for policy easing, with market data showing a roughly 85% probability of a 25-basis-point rate cut in September, a sharp increase from below 40% in early July [5]. The market's strong response underscores the significant influence of Fed communication on investor sentiment and asset valuations.

The rally was broad-based, with all three major U.S. stock indices rising by more than 1% in the immediate aftermath of Powell’s speech. The S&P 500 climbed 1.63%, the Dow Jones Industrial Average surged 1.97%, and the Nasdaq Composite gained 1.97%. Technology stocks led the charge, with the Nasdaq 100 jumping 1.77%. The VIX volatility index dropped 12.23%, signaling a sharp decline in market fear and increased confidence in the Fed’s flexible policy approach [2].

In his speech, Powell outlined a revised monetary policy framework, removing the “makeup” inflation targeting strategy introduced in 2020 and emphasizing a return to a policy designed to support maximum employment and stable prices across various economic conditions. He noted that inflation expectations remain well-anchored and that the Fed’s policy rate is now 100 basis points closer to neutral than a year ago. However, Powell also highlighted the challenges ahead, including upside inflation risks and downside employment risks, stating that the Fed would take a data-dependent approach to policy decisions [1].

Economic data presented by Powell pointed to a slowdown in job growth, which had averaged just 35,000 per month over the past three months, down from 168,000 in 2024. Additionally, GDP growth in the first half of 2025 slowed to 1.2%, and inflation remained elevated, with total PCE inflation at 2.6% and core PCE at 2.9% in July. Powell attributed some of the inflationary pressure to higher tariffs and tighter immigration policies, both of which have impacted labor force growth and consumer prices [3].

The bond market also responded to Powell’s signals, with the U.S. Dollar Index declining 0.89%, and gold rising 1.15%. These movements reflect expectations for a less hawkish Fed, with traders anticipating increased liquidity and lower rates in the months ahead. Analysts had previously outlined scenarios for Powell’s speech, with the best-case scenario involving a more accommodative rate path leading to further market gains. The actual outcome aligned with these optimistic projections, as the Fed’s willingness to consider rate cuts helped restore investor confidence [4].

The market reaction mirrored historical patterns, with a sharp contrast to 2022, when a hawkish speech from Powell led to a 3% drop in the S&P 500. The current positive response highlights the market’s optimism about the Fed’s evolving stance and its ability to manage inflation without triggering a severe labor market downturn. As investors await further guidance on the timing and magnitude of policy adjustments, the market remains positioned for continued volatility based on future Fed communication and economic data [7].

Source: [1] Powell says weaker labor market may merit rate cuts but ... (https://www.washingtonpost.com/business/2025/08/22/powell-jackson-hole-fed-rates/)

[2] Markets Rally as Fed Chair Powell Signals Potential Rate Cut (https://scanx.trade/stock-market-news/global/traders-increase-predictions-for-federal-interest-rate-cuts-in-september/17417609)

[3] Powell Signals Possible Fed Rate Cut as Policy Risks Shift ... (https://www.fxempire.com/news/article/powell-signals-possible-fed-rate-cut-as-policy-risks-shift-after-jackson-hole-speech-1543380)

[4] 3 scenarios for Jerome Powell's Jackson Hole speech (https://www.businessinsider.com/jackson-hole-preview-jerome-powell-speech-stock-market-reaction-rates-2025-8)

[5] Fed rate cut odds rise after Powell's Jackson Hole speech (https://www.msn.com/en-us/money/markets/fed-rate-cut-odds-rise-after-powell-s-jackson-hole-speech/ar-AA1L2bux?ocid=finance-verthp-feeds)

[6] Powell hints at September rate cut, sending Dow up 650 ... (https://nypost.com/2025/08/22/business/powell-hints-at-september-rate-cut-sending-dow-up-650-points/)

[7] Powell Signals Interest Rate Cuts In Jackson Hole Speech ... (https://www.forbes.com/sites/tylerroush/2025/08/22/powell-says-conditions-may-warrant-interest-rate-cut-in-jackson-hole-speech-live-updates/)