There's a good chance that S&P/ASX 200 Index (ASX: XJO) investors will be waiting until 2025 for the first interest rate cuts from the Reserve Bank of Australia (RBA).
But the benchmark index could still be set to catch some tailwinds next month courtesy of the United States Federal Reserve.
Relative to Australia, the US is ahead of the curve in bringing inflation back under control.
Like Australia and most of the developed world, inflation in the world's top economy soared to over 7% following a sustained period of record low interest rates and fiscal easing in the wake of the global pandemic.
This saw the Fed lift interest rates in the US to the current 5.25% to 5.50% range.
Now, global stock market and ASX 200 investors alike hope to see those rates come down when the Fed makes its next decision on 18 September.
The big question investors are pondering is whether the Fed will lower rates by 0.25% or implement a full 0.50% cut.
With that in mind, here's what we learned on Friday (overnight Aussie time) when Fed chair Jerome Powell addressed the central bank symposium at Jackson Hole, Wyoming.
Image source: Getty Images
What clues did Powell offer ASX 200 investors?
ASX 200 investors hoping for some confirmation that the US is poised to begin paring back interest rates next month were not disappointed.
Indeed, the Fed chair noted that the central bank's "confidence has grown that inflation is on a sustainable path back" to the Fed's target of 2%.
According to Powell (quoted by Bloomberg):
The time has come for policy to adjust. The direction of travel is clear, and the timing and pace of rate cuts will depend on incoming data, the evolving outlook, and the balance of risks.
Powell also pointed to concerns over ongoing high rates dragging on US labour markets, saying:
We do not seek or welcome further cooling in labour market conditions. We will do everything we can to support a strong labour market as we make further progress toward price stability.
What did AMP make of Powell's interest rate signals?
Commenting on Powell's address, Diana Mousina, deputy chief economist at AMP Ltd (ASX: AMP), said (quoted by The Australian Financial Review):
Powell's Jackson Hole speech on the economic outlook was bullish-dovish. Given that a September rate cut looks like a done deal now, the question will go to whether the next move in the Fed funds rate should be a 25- or 50-basis-point rate cut.
Omair Sharif, president of Inflation Insights, agrees with AMP that ASX 200 investors could see either a 0.25% or 0.50% interest rate cut from the Fed.
"Chairman Powell's speech made it clear that there are likely a series of rate cuts on the way, and some could be of the 50-basis-point variety," he said.
And the team at Bloomberg Economics added:
Powell's very dovish address at Jackson Hole was music to market players' ears. He pledged the Fed would do 'everything' it can to support a strong labour market, providing a floor for the economy. We think a bit of a reality check is in order.
Any interest rate reduction in the world's top economy should offer some support for the ASX 200 in the latter weeks of September. If the Fed opts for a bigger cut, global markets could rally on the news.
