Following Federal Reserve Chair Jerome Powell indication that an interest rate cut may be imminent, the Dow Jones Industrial Average broke all previous records on Monday, rising 846 points. One of the most potent one-day gains of the year, this record-breaking rise reflected Wall Street’s rising euphoria and bolstered hopes that borrowing costs may eventually other side following an extended period of aggressive Financial austerity.
“Ka-Powell” – that’s how Brian Jacobsen, chief economist at Annex Wealth Management, described the reaction to Jerome Powell’s much-anticipated speech in Jackson Hole, Wyoming. “The Fed is not going to be a party-pooper.”
Powell was expected by investors to hint at the possibility of the Fed’s first interest rate cut of the year. Even while lower rates run the danger of making inflation worse, Wall Street prefers them since they can slow down the economy.
Dow Jones Powell’s Dovish Shift
Powell admitted that inflation has dropped more quickly than policymakers had anticipated when he spoke at the Federal Reserve annual policy in Jackson Hole. His remarks implied that the Fed may soon shift its focus to rate cuts, even as he reiterated that the Fed is still dedicated to its 2% inflation target.
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“The risks to achieving our goals are becoming more balanced,” Powell noted. “We are prepared to adjust policy as needed to support sustainable growth.” Markets took that as a clear dovish signal. Traders now see a strong chance that the Fed will deliver its first rate cut as early as September, according to CME Group’s Fed Watch tool.
Powell encouraged them on Friday after saying he’s seen risks rise for the job market. The Fed’s two jobs are to keep the job market healthy and to keep a lid on inflation, and it often has to prioritize one over the other because it has just one tool to fix either.
The problem is that Treasury yields have decreased in bond markets due to speculation that the Federal Reserve may lower its benchmark interest rate in September. CME Group data indicates that traders now have an 83% likelihood, up from 75% the previous day.
Stocks Ignite Across the Board
The Dow Jones finished at an all-time high, closing at 40,324 its biggest one-day point gain since 2020. The S&P 500 also surged more than 2%, while the tech-heavy Nasdaq soared nearly 3% as rate-sensitive sectors like technology, housing, and consumer discretionary stocks jumped.
Smaller company stocks led the way on Wall Street. Since they must borrow money in order to expand, they stand to gain more from reduced interest rates. The Russell 2000 index’s smaller stocks more than equaled the S&P 500’s rise, rising 3.9% for their highest day since April.
Major winners included Apple, Microsoft, and Tesla, all of which rallied sharply on the prospect of cheaper financing and stronger consumer demand. Banks also posted solid gains, as investors anticipate improved loan activity in a lower-rate environment. Energy stocks advanced on hopes of higher global demand, while industrial giants tied to the Dow Jones index such as Boeing and Caterpillar also benefited from the renewed optimism. Analysts noted that the broader strength across sectors highlighted how the Dow Jones rally was driven not just by tech, but by a more widespread belief that easing monetary policy will boost the entire U.S. economy.
The U.S. dollar, which initially slumped on Powell’s dovish remarks, later rebounded against major currencies as traders recalibrated expectations. Meanwhile, U.S. Treasury yields fell, with the 10-year yield dropping below 4.1% for the first time in weeks a sign that bond investors are also bracing for easier monetary conditions.
The Dow Jones on Friday its come first closing record high of the year. It’s been 177 trading days since the Dow Jones last closing record in December, according to Howard Silver blatt, senior index analyst at S&P Dow Jones Indices.
For Wall Street, the stakes are high. A rate cut would lower borrowing costs across the economy, potentially fueling spending, corporate investment, and stock buybacks. But Powell also made clear that the Fed will remain data-dependent, meaning any surprise uptick in inflation could delay or reduce the scope of cuts.
Still, investors are placing bets that things will change. “The markets have been waiting for this exact green light,” one Morgan Stanley strategist said. “Growth can continue without the same headwinds from higher rates thanks to the Fed’s shift.” All eyes are now on the Fed’s September meeting, which may set the tone for the rest of 2025, with the Dow at record highs and prospects for looser monetary policy growing.