Powell's Dovish Tilt Fuels Rate Cut Bets as Analysts Caution Against Certainty on September Pivot

01:30 PM EDT, 08/22/2025 (MT Newswires) -- Federal Reserve Chair Jerome Powell struck a more dovish tone than expected in a keynote speech, boosting market bets on an interest rate cut next month, while analysts cautioned that a move in September isn't guaranteed.

In Jackson Hole, Wyoming, on Friday, Powell indicated a possible policy pivot to lower rates, highlighting downside risks to employment and suggesting that tariff-driven inflation pressures may prove transitory.

The odds that the Federal Open Market Committee will cut rates by 25 basis points next month rose to 87% on Friday from 75% on Thursday, according to the CME FedWatch tool.

The decision in September will largely hinge on August employment and inflation data, Thomas Feltmate, senior economist at TD Economics, said in a note.

"While a September cut is looking more likely, it is still not a guarantee," Feltmate said.

Michael Gregory, deputy chief economist at BMO Economics, shared that sentiment, pointing to almost a month's worth of data and potential policy developments before the Fed's next meeting.

"For now, though, we lean toward a rate cut," Gregory said in a report.

Data released earlier this month showed that the US economy added fewer jobs than projected in July, while gains in the previous two months were revised sharply lower.

Employment faces increasing downside risks, though the slowdown in job growth hasn't opened up "a large margin of slack in the labor market -- an outcome we want to avoid," Powell said in his prepared remarks.

"There's a growing divide among policymakers on what's behind the recent slowing in employment," Feltmate of TD Economics said. "We would argue that today's market reaction could be a bit overdone."

"With the Fed's dual mandate coming into tension, Fed officials will remain acutely attuned to risks on both sides, meaning the FOMC's approach to adjusting policy is probably best characterized as a move to a less-restrictive environment as opposed to a return to neutral," Feltmate said.

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