Stocks rally, yields dip as Powell opens door to September rate cut

By Alun John and Noel Randewich

LONDON/SAN FRANCISCO (Reuters) -Stocks climbed and U.S. Treasury yields and the dollar fell on Friday after Federal Reserve Chair Jerome Powell pointed to a possible rate cut at the central bank's September meeting. 

Wall Street shares rallied after Powell stopped short of committing to cutting interest rates as he acknowledged growing risks to the job market while also saying risks of higher inflation remain. 

His remarks, to the annual central banking symposium at Jackson Hole, are his final address as chair of the Fed. 

The S&P 500 and Nasdaq Composite rose 1.5% and 1.7%, respectively. The Dow Jones Industrial Average jumped 2.2% to a record intraday high.  

Government bonds also welcomed the news with the rate-sensitive two-year Treasury yield down nearly 10 basis points at 3.69%. Benchmark 10-year yields fell 6 bps to 4.27%. [US/] 

Powell's past speeches at the event have often moved markets, and this year's remarks are under particularly close scrutiny as his position has come under heavy criticism from U.S. President Donald Trump, sparking concerns about potential threats to the Fed's independence.

His comments open the door to a rate cut at the Fed’s September 16-17 meeting, and while he put heavy weight on jobs and inflation reports that will be received before then, analysts said Powell appeared to be putting greater weight on the former. 

“Given Powell's surprisingly dovish comments, it makes sense that both stocks and bonds are up significantly today," said Tom Graff, chief investment officer at Facet. 

"However, looking over the next couple months, rate cuts alone won't be enough to sustain strength in stocks. The rate cuts will have to ‘work’ in the sense that the economy regains momentum,” Graff added.

Powell offered little guidance about how soon or how quickly rates might continue to move lower, likely stoking further pressure from Trump, who contends there is no risk of inflation and that the Fed should slash rates immediately. 

European markets echoed the moves by their U.S. peers, but in a more muted manner. 

Europe's broad STOXX 600 index climbed 0.4%, while Germany's 10-year yield, the euro zone benchmark, was down 3 bps at 2.72%. [.EU]  [GVD/EUR] 

The dollar index, which measures the greenback against a basket of currencies including the yen and the euro, was last down 0.89% on the day at 97.73, after trading around 98.7 before Powell's comments.

The euro gained 0.97% to $1.1717. Against the Japanese yen, the dollar weakened 1.1% to 146.74.  [FRX/] 

CHINA TECH

Earlier in the day, the focus was on Chinese shares and the CSI 300 Index gained 2.1%, after DeepSeek released an upgrade to its flagship V3 AI model and Reuters reported that Nvidia had asked Foxconn to suspend work on the H20 AI chip, lending support to Chinese rivals.

Tech stocks listed in Hong Kong rose 2.7%.

Also in Asia, Japanese data showed core consumer prices slowed for a second straight month in July but stayed above the central bank's 2% target, keeping alive expectations for a rate hike in the coming months. 

Oil prices nudged up, with Brent crude futures up 18 cents at $67.85 a barrel following strong gains on Thursday as Russia and Ukraine blamed each other for a stalled peace process. U.S. crude was up a similar amount at $63.78. 

Gold also gained, with spot bullion up about 1% at $3,370 per ounce. [GOL/]

(Reporting by Alun John and Iain Withers in London, and by Noel Randewich in San Francisco, Additional reporting by Gregor Stuart Hunter in Singapore;Editing by Aidan Lewis, Philippa Fletcher and Matthew Lewis)