Weekly Economic Update: August 26, 2025

Powell speaks and markets like what they hear

Federal Reserve Chair Jerome Powell’s speech at the Jackson Hole Economic Policy Symposium late last week was just what the U.S. market wanted to hear.¹ The days leading up to his speech were somewhat depressing, as the big tech companies got beaten up and took the S&P 500 and Nasdaq down with them.²

One of the things Powell said during his Friday speech was this: “The stability of the unemployment rate and other labor market measures allow us to proceed carefully as we consider changes to our policy stance. Nonetheless, with policy in restrictive territory, the baseline outlook and the shifting balance of risks may warrant adjusting our policy stance.”

Translation? “We’re concerned enough about the deteriorating jobs picture that we will begin cutting rates in September.” At least, that’s what the markets seemed to think it meant.

The Dow soared almost 850 points on Friday to close at a new record of 45,631.74.³ The S&P 500 added almost 100 points, not a new record but closing a few points shy of its record.⁴ (The S&P 500 has set a bunch of new highs earlier this month, and it was time for the Dow to catch up.) And the Nasdaq joined the party by jumping nearly 400 points on the day.⁵

It seems the long-awaited rate cuts are here. Did Powell finally see the light? Did Trump’s badgering finally wear him down? It would be nice to believe that with inflation at its current elevated-but-stable levels, Powell has finally realized the tariff tussle will not lead to a widespread, across-the-board increase in inflation. Hopefully, he’s also been convinced that interest rates are too high and the economy (and U.S. consumers) could use a boost.

So, it appears the markets got what they were wanting: a much-appreciated shift in the Fed’s stance. Now the debate moves to how many cuts we can expect by the end of the year. Will we see two? Three? The Fed Funds futures probabilities are slightly in favor of three cuts total by year’s end, but it would be great just to see the first one!⁶

Progress on Ukraine?

After meeting with Russian President Putin on Aug. 15 in Alaska, President Trump summoned Ukrainian President Zelenskyy and European leaders to Washington to discuss plans going forward.^7,8 Trump is working on brokering a meeting between Zelenskyy and Putin, which will hopefully lead to an end to the nearly three-and-a-half-year war. If the meeting goes well, Trump has proposed a meeting where he will appear with both Zelenskyy and Putin. If that’s announced, a peace deal will likely be done.

Why are we focusing on this? There’s the obvious immediate result that the killing will stop. (This has been a devastating war for both sides.) Then there’s the de-escalation in geopolitical tensions, which can only benefit markets.

Digging a little deeper, there’s a very detrimental undercurrent that may arise if peace talks fall through. Not only will the world remain more dangerous, but it seems likely that Trump will pursue more punitive sanctions against Russia and all the countries that buy Russian oil (India, China) or directly support them (China). Russia will face additional tariffs and we know how that will go, especially if additional tariffs on China are announced. Simply put, markets won’t like that — and we may have a repeat of this past April in the form of a less-drastic pullback.

For a myriad of reasons, settling the war in Ukraine will have far-reaching benefits. If it drags on, markets will have problems heading into year-end. The big wild card is still Putin, who continues to attack Ukraine even though he says he wants peace.

Coming this week

• With Jackson Hole out of the way, plenty of Fed speakers will discuss their perspectives on the circuit this week. What we want to hear is that there is a rate cut coming at the next meeting, without waffling. Markets will get confused if we start hearing conflicting messages.
• Right now, Fed Funds futures are predicting an 85% probability of a 25-basis-point (0.25%) cut at the September Fed meeting, down from 95% a couple of weeks ago.⁶ It’s surprising the number hasn’t gone back up, given Powell’s comments last week.
• Other data this week includes MBA mortgage applications on Wednesday and weekly unemployment claims on Thursday. We’ll also see the first revision of second-quarter gross domestic product (GDP), which initially came in at 3% year-over-year growth.⁹
• We’ll have another look at inflation on Friday, this time through the personal spending and personal income reports. The week will end with another look at consumer sentiment.

Sources:

¹ Federal Reserve. Aug. 22, 2025. “Monetary Policy and the Fed’s Framework Review.” https://www.federalreserve.gov/newsevents/speech/powell20250822a.htm. Accessed Aug. 24, 2025.

² Pia Singh. CNBC. Aug. 21, 2025. “S&P 500 posts fifth losing day ahead of Powell speech, Dow drops 150 points: Live updates.” https://www.cnbc.com/2025/08/20/stock-market-today-live-updates.html. Accessed Aug. 24, 2025.

³ Yahoo! Finance. “Dow Jones Industrial Average (ˆDJI).” https://finance.yahoo.com/quote/%5EDJI/. Accessed Aug. 24, 2025.

⁴ Yahoo! Finance. “S&P 500 (ˆGSPC).” https://finance.yahoo.com/quote/%5EGSPC/. Accessed Aug. 24, 2025.

⁵ Yahoo! Finance. “NASDAQ Composite (ˆIXIC).” https://finance.yahoo.com/quote/%5EIXIC/. Accessed Aug. 24, 2025.

⁶ CME Group. “FedWatch.” https://www.cmegroup.com/markets/interest-rates/cme-fedwatch-tool.html. Accessed Aug. 24, 2025.

⁷ Jake Lapham. BBC. Aug. 15, 2025. “What to know about the Trump-Putin meeting in Alaska.” https://www.bbc.com/news/articles/crev9ep2vdgo. Accessed Aug. 24, 2025.

⁸ Katherine Doyle. NBC News. Aug. 19, 2025. “Trump and Zelenskyy’s meeting with European leaders marks a historic moment.” https://www.nbcnews.com/politics/white-house/trump-zelenskyys-meeting-europe-leaders-historic-moment-russia-rcna225817. Accessed Aug. 24, 2025.

⁹ Bureau of Economic Analysis. July 30, 2025. “Gross Domestic Product, 2nd Quarter 2025 (Advance Estimate).” https://www.bea.gov/news/2025/gross-domestic-product-2nd-quarter-2025-advance-estimate. Accessed Aug. 24, 2025.

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