The best "Fed Day" in two years, was the September rate cut really stable? Heavy interpretation from Wall Street

Powell's dovish remarks helped the stock market continue its rally, with the market marking its best "Fed Day" in two years.

The U.S. stock market rebounded strongly on Wednesday, with the NASDAQ 100 Index rising by 3%. NVIDIA surged by 13%, adding a record $329 billion to its market value, following bullish analyst views. Meta saw a surge in sales performance during late trading. The world's largest smartphone processor seller, Qualcomm, provided strong revenue expectations. U.S. Treasury yields and the dollar both declined, with U.S. Treasuries rising for the third consecutive month, marking the longest uptrend since 2021. The Bloomberg "Magnificent Seven" index rose by 3.5%. The small-cap Russell 2000 Index increased by 0.5%. Gold soared to its highest monthly closing level in history. While oil had a lackluster overall performance this month, tensions in the Middle East led to a significant rebound in oil prices.

Powell stated at a press conference that officials could potentially cut rates as early as September, and the Fed's statement also included several adjustments in wording. It is noteworthy that the committee shifted its focus to "risks on both sides of its dual mandate," rather than solely focusing on inflation as before.

Neil Dutta from Renaissance Macro Research commented, "Powell's press conference was more dovish than the FOMC statement. It sounds like they are definitely just waiting to wait. After all, he himself admitted that all data points in the direction he wants to see! With such wording, it means the Fed will have to make a more pronounced shift in wording in September. I am surprised that the stock market remained strong in this statement. The minutes of today's meeting and the August Jackson Hole central bank meeting will provide more opportunities."

"Powell is getting better at not showing all his cards," said Chris Zaccarelli from Independent Advisor Alliance. "Ultimately, the market is hopeful for a rate cut cycle starting in September, although Powell has repeatedly tried to keep the Fed's options open."

The changes in the Fed's statement solidify the tone shift among several policymakers, including Powell, recognizing the increasing risks facing the labor market. These changes may also strengthen economists' and investors' expectations for a rate cut in September.

"Powell really wanted to say 'let's get started' today, but at the same time, he knows he doesn't need to make a commitment until he has more time and data," said Peter Boockvar from The Boock Report In the view of Ronald Temple at Lazard, the Federal Reserve has "clearly signaled" a rate cut in September. He pointed out, "While I believe that slowing inflation, easing tight labor market conditions, and slowing economic growth were valid reasons for the rate cut in July, I think the reasons for a rate cut 7 weeks later will be even more compelling."

Interest rate swap traders still fully expect a 25 basis point rate cut in September, totaling nearly 70 basis points for the year.

Tiffany Wilding from Pacific Investment Management Company (PIMCO) said that as the market has already fully priced in a rate cut in September, the Fed's statement and Powell's speech have not significantly altered the interest rate trend in the bond market.

"The data has been moving in Powell's direction, and now he is preparing to follow suit," said David Russell of TradeStation. "Friday's non-farm payroll data and CPI in two weeks are the next important items. If these data progress smoothly, Powell may provide clearer information at the end of August during the annual Jackson Hole central bank meeting."

Below are more views from some Wall Street commentators and strategists on the latest Fed decision:

UBS trader Leo He:

"This statement is undoubtedly more dovish than the one in June, as the Fed has indicated they are now focusing on the dual mandate. But this is definitely not a complete turnaround. Given Mester's retirement, the most dovish FOMC member, Gülsüm, voted as an alternate member at this meeting. Beth M. Hammack will take over as Cleveland Fed president later this month and may assume the voting role from September."

LH Meyer/Monetary Policy Analytics economist Derek Tang:

"The statement is quite balanced, capturing well the easing of inflation and real conditions, while not fueling the momentum for a rate cut in November. If nothing stops their action, a loose policy in September should still be feasible."

Bloomberg Intelligence Chief Rate Strategist Ira Jersey:

"Overall, the Fed's policy statement seems to align with our expectations as it is balanced. The new wording does not mean a rate cut in September is imminent. Selling at the front end of the curve seems reasonable. Powell's press conference may better explain the issues than the gradual changes in the statement."

DWS Head of Americas Fixed Income George Catrambone:

"The risks are more two-sided now. They will have more data to confirm the path of declining inflation, but waiting too long may not achieve a soft landing."

Morgan Stanley economist Ellen Zentner: "The FOMC statement has undergone significant changes in its description of inflation and the labor market, emphasizing the risks of the dual mandate. The emphasis on cooling in the labor market is an important shift towards a more balanced tone, and we believe this prepares the Fed for a rate cut in September."

Bloomberg Economics Chief Economist Anna Wong:

"The policy statement contains very few red lines, but it conveys a lot of information to investors: officials are definitely not ready to cut rates in July, nor do they want investors to assume with certainty that there will be a 25 basis point cut in September, let alone the 50 basis point cut that the market has recently considered. The new statement retains the wording that the committee does not see a need to cut rates before gaining confidence in the downward trajectory of inflation, which is a hawkish move. However, by acknowledging the recent rise in the unemployment rate and adding that they are now also focusing on the full employment part of their dual mandate, the FOMC does leave hope for a rate cut in September. We believe the main reason they are only hinting at an imminent rate cut is that there is still a lot of data to be released before the September FOMC meeting—two more inflation and employment reports, which could see significant changes in the data by then. Powell will speak at the end of August at Jackson Hole, where he will have another month of employment and inflation data, making it the best time to clearly signal a rate cut in September."

Bank of America Economist Michael Gapen:

"I think this is the right gradual step. I think the Fed feels it is now at a sweet spot, with data moving in its direction, so it is getting close. It just needs a little more, and then that kind of fuzzy confidence may emerge."

Fitch Ratings Chief Economist Brian Coulton:

"As the Fed prepares to open the door to rate cuts in September, the key is slowly turning."