Powell’s Rate Cut Signals Stir Markets, Jobs Data Could Fuel Volatility

Powell’s Comments and Non-Farm Payrolls Data: Key Market Drivers

Federal Reserve Chair Jerome Powell, speaking on Monday, signaled smaller, data-dependent rate cuts, putting traders on edge ahead of Friday’s critical Non-Farm Payrolls (NFP) report. As markets brace for potential shifts in monetary policy, Powell’s emphasis on a “meeting by meeting” approach leaves the door open for more rate adjustments based on economic performance.

Powell indicated that future rate cuts would likely be in 25 basis-point increments, reflecting the Fed’s confidence in cooling inflation. Traders had anticipated a 50 basis-point cut in November, but Powell’s comments have reduced that probability to 35.4%, according to CME Group’s FedWatch Tool. Powell’s measured tone suggests the Fed will proceed cautiously, balancing inflation and labor market stability.

Non-Farm Payrolls: Market Sentiment Hinges on Jobs Data

Analysts expect the September NFP report to show payroll growth of 147,000 and a slight increase in the unemployment rate to 4.3%. While these numbers indicate the labor market is cooling, they’re unlikely to signal a major downturn. The Fed’s recent rate cuts may provide some support, but the full impact won’t be immediate due to monetary policy lags.

The labor market remains central to the Fed’s decision-making. A weaker-than-expected jobs report could reinforce Powell’s cautious tone, supporting slower rate cuts. Conversely, a stronger report could prompt traders to reduce expectations of future easing.

Treasury Yields, Gold, and Stocks Brace for Volatility

1. Treasury Yields: Yields have already risen, with the 10-year Treasury note climbing to 3.8% after Powell’s remarks. If the NFP data aligns with expectations of a cooling labor market, yields may stabilize. However, stronger-than-expected jobs data would likely push yields higher as traders price in fewer rate cuts.
2. Gold: Gold prices, which typically move inversely to Treasury yields and the U.S. dollar, are under pressure from Powell’s cautious stance. If the NFP data signals further labor market weakness, gold could rebound as traders anticipate more aggressive rate cuts, which would lower real yields and support the metal.
3. Stocks: Equities, with the Dow Jones falling 150 points during Powell’s speech, are set for continued volatility around the NFP release. Weaker jobs data could boost expectations for more rate cuts, providing some support to stocks. However, stronger jobs data may temper hopes for rapid monetary easing, potentially triggering further selloffs in risk assets.

Stocks, Bonds, and Gold Set for Volatility Amid Fed Signals and Jobs Data

With inflation cooling and labor market data softening, stocks could see short-term support, though risks remain. Treasury yields are likely to stay elevated unless economic data significantly weakens, while gold’s direction will depend on the interplay between inflation and labor conditions. Traders should prepare for potential market swings following Friday’s NFP report and the Fed’s next moves.