Powell sends the strongest rate cut signal, gold rises by $20 in the short term!

At 22:00 Beijing time on Friday, Federal Reserve Chairman Powell delivered a speech on the economic outlook at the Jackson Hole Symposium.

With Powell clearly stating that the time for policy adjustment has come, "we are not seeking or welcoming further cooling of the labor market. My confidence in inflation returning to 2% has increased," spot gold rose by $20 in the short term, the US dollar index fell by nearly 50 points in the short term, breaking below 101 for the first time since December last year. Spot silver rose by 2.00% intraday.

Non-US currencies rose across the board, with the euro rising nearly 30 points against the US dollar, the pound rising by 60 points against the US dollar, and the US dollar falling by 60 points against the yen. The US stock market continued to rise, with the S&P 500 index up 1% and the Nasdaq up 1.5%.

Traders increased their bets on a rate cut by the Federal Reserve following Chairman Powell's speech. Interest rate futures traders expect a 33% probability of a 50 basis point rate cut by the Federal Reserve in September, up from before Powell's speech.

The most active COMEX gold futures contract saw 3,162 lots traded in one minute from 22:00 to 22:01 Beijing time on August 23, with a total contract value of $804 million.

Regarding the two risks corresponding to the Federal Reserve's "dual mandate," Powell pointed out that the upward risk of inflation has diminished, while the downward risk of employment has increased.

The Wall Street Journal stated that Powell has sent the strongest signal of a rate cut so far, indicating that the Federal Reserve intends to take action to prevent further weakness in the US labor market. It is widely expected that the Federal Reserve will cut rates at the September meeting. Powell's remarks on Friday almost put an end to the Fed's historic anti-inflation actions, as two years ago, Powell indicated willingness to accept an economic downturn as a cost of lowering inflation. Powell's attitude this time is far less ambiguous than at the press conference after the last meeting. At that time, Powell said the Fed needed more data to be confident about the decline in inflation. Friday's speech indicates that he now has that data.

Nick Timiraos, the "Fed Whisperer," posted on social media that today's speech shows Powell's policy shift is complete, with Powell showing a fully dovish stance, a stark contrast to two years ago when he indicated the Fed would accept an economic downturn as a means to restore inflation.

Kathy Jones, Chief Fixed Income Strategist at Charles Schwab, said, "The signal we are getting is very clear, that the Fed is prepared to cut rates. Concerns about the labor market conditions now outweigh inflation risks. With policy relatively tight, there is room for rate cuts."

Despite economic data slowing down leading the market to believe the Fed will cut rates in September, and the probability of a 50 basis point rate cut in September rising, there are differing views on the extent of the rate cut According to CME's "Fed Watch," the probability of the Fed cutting interest rates by 25 basis points in September is 67.5%, and the probability of a 50 basis points cut is 32.5%. The probability of the Fed cumulatively cutting rates by 50 basis points by November is 43%, by 75 basis points is 45.2%, and by 100 basis points is 11.8%.

Powell stated: "The direction is clear, and the timing and pace of rate cuts will depend on upcoming data releases, evolving outlook, and the balance of risks."

Analyst Anna Wong: In our view, Powell's remarks sound quite dovish. So far, he has not deterred bets on a 50 basis points rate cut in September, has not indicated that rate cuts should be gradual, and has not used the phrase "methodical" like his colleagues to describe the potential rate cut path