Stocks closed higher on Friday and for the week, making it two up weeks in a row for all of the major indexes.

Friday's Jackson Hole speech by Fed Chair Jerome Powell essentially 'confirmed' that the Fed is likely to cut rates in 3½ weeks when the Fed next meets on September 17-18.

While he didn't come out and say that outright, he did say that "inflation is now much closer to our objective, with prices having risen 2.5% over the past 12 months," and that his "confidence has grown that inflation is on a sustainable path back to 2%."

As you know, the Fed having sufficient confidence that the inflation was on a sustainable path back to 2% was what they were looking for, and it appears they have finally reached that.

As such, he said "the time has come for policy to adjust."
He did qualify it to a degree by saying "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."

No doubt the faster than expected weakening of the labor market has put more urgency into the timing of rate cuts.

Last month's weaker than expected jobs report, coupled with last week's annual employment revisions by the Bureau of Labor Statistics (BLS), where they slashed new job gains by 818,000 (the largest revision in 15 years), underscored that the risk to the labor market has grown, while the risk to inflation has receded, thus elevating the importance of cutting interest rates sooner rather than later.

While Fed Funds traders are placing a near certainty that a cut is coming in September, the debate will now shift to how much, and what happens next? At the moment, there's a 76% chance for a 25 basis point cut in September, and a 24% chance of a 50 bps cut. But what happens in November and December are the other unknowns. Will they cut and watch? Or, will this cut usher in a steady cadence of additional cuts to follow? And ultimately to what extent?

In the meantime, we'll get another look at inflation this week. On Friday, 8/30 we'll get the Personal Consumption Expenditures (PCE) index, which is the Fed's preferred inflation gauge.

And then next week, on Friday, 9/6 we'll get the Employment Situation report. (The last one sent stocks reeling.)

While it's hard to imagine a scenario in either one of those that would preclude the Fed from moving ahead with a rate cut on 9/18, those reports will play a role in determining the size of the cut, and the trajectory of future rate cuts. So all eyes will be on those.

But there are plenty of other economic reports out this week.

And earnings reports. In fact, even though we're at the end of earnings season, we've got one of the Magnificent 7 stocks, i.e., NVDIA reporting on Wednesday, 8/28 after the close. That too could influence the market.

As it stands, the Dow and the S&P are less than 0.10% and 0.60% from their all-time high closes from last month, all but erasing their pullback/corrections from previous weeks. Although, the Nasdaq, which has rebounded greatly, is still about 4.13% away from their record close.

A soft landing is still in the cards.

Momentum is back on the upside.

And that bodes well for more gains to come.

See you tomorrow,