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The Weekly Bottom Line

Our summary of recent economic events and what to expect in the weeks ahead.

Date Published: August 22, 2025

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Highlights

  • In his Jackson Hole speech, Fed Chair Powell highlighted that the downside risks to employment have risen. This shifts the balance of risks on employment and inflation, and opens the door for a September rate cut more widely.
  • Odds of a September rate cut rose after his speech, boosting stock markets.
  • Also this week, July housing data improved but did not change the overall slow market trend.

Fed Chair Powell Opens Door for Rate Cuts


Chart 1 shows market odds of a rate cut at the mid-September meeting. The chart shows that odds of a cut had trekked moderately lower in recent days, holding at roughly 75% as of Thursday August 21st. But, following the Speech, odds of a September cut jumped back up to around 90%.

Financial markets appeared set to finish slightly lower for the week. However, following Chair Powell’s keynote speech on Friday morning at the Federal Reserve’s annual symposium in Jackson Hole, Wyoming—where he indicated the possibility of rate cuts—equities rallied. The 10-year yield declined from around 4.33% earlier in the day to 4.26%, while the S&P 500 rose by 1.4% at the time of writing, surpassing last week’s close.

With few major data releases during the week (only two main housing reports), attention was focused on developments related to the central bank. The FOMC minutes provided additional context regarding the July decision not to cut rates. Participants highlighted risks associated with both sides of the Committee’s dual mandate, referencing “upside risk to inflation and downside risk to employment.” In July, most participants considered the inflation risk to be more significant, citing uncertain tariff effects and concerns about inflation expectations.

Chart 2 shows the year-on-year change in median prices for the U.S. and all four Census regions, with the data also slip up by segment (i.e., single-family and condo/co-op). The chart shows that the South and the West Census regions are bearing the brunt of the slowdown in home price growth.

In his Jackson Hole speech this Friday morning, Chair Powell suggested a change in the Fed’s position. He noted that with policy currently restrictive, adjustments may be warranted given the outlook and balance of risks (see commentary). The key shift in Powell’s messaging relative to July reflects the recent jobs data and acknowledges that downside risks to employment are rising. This both tips the balance on the Fed’s dual mandate to greater concern about fostering maximum employment, and reduces the risks that tariff-driven inflation leads to a wage-price spiral. By emphasizing downside risks to employment and reduced risks of persistent inflation, Chair Powell has opened the door for a rate cut in September. There is still an employment and an inflation report for the Fed to parse before deciding whether to walk through the door. This is a key shift from Chair Powell, and not surprisingly market odds of a September rate cut jumped back up following his speech (Chart 1). 

Lower rates can’t come fast enough for the housing market. Existing home sales increased moderately in July (up 2% month-over-month), but overall activity remained subdued, with sales levels near those seen during the Global Financial Crisis. Soft demand and some inventory growth have contributed to slower home price appreciation, particularly in the West and South Census regions (Chart 2). There was a notable rise in multifamily starts in July, primarily in the South, though this series is volatile and permitting data suggest a weaker outlook. Single-family starts showed little change from subdued levels, in tune with looser conditions in the new home market. Should the Federal Reserve lower rates later in the year as expected, mortgage rates should decline further, supporting housing activity in the future.

All told, barring any major surprises in payroll and inflation data, it is widely expected that the Federal Reserve will resume rate cuts in mid-September.

Admir Kolaj, Economist | 416-944-6318

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