Traders debate size, path of rate cuts after Powell's pivot

Next monthly US labour report, July personal consumption index among key data to look out for

NEW YORK - Now that US Federal Reserve chairman Jerome Powell has made it crystal clear that interest rate cuts are coming in September, bond traders are focusing on bets over the size of that first reduction and the future path of easing.

Mr Powell, speaking on Aug 23 at the US central bank's annual symposium in Wyoming, said the "time has come" for the Fed to lower benchmark rates from their twodecade high, his clearest signal yet that long-awaited rate cuts are imminent.

While the Fed chairman gave no indication on the size of cuts or the path of easing, he noted progress on inflation and said central bankers will be keeping a close eye on the health of the labour market as a guide for where to take policy.

His words were enough to send US Treasury yields and the US dollar lower and stocks higher on Aug 23 as investors perceived a green light to take on risk.

"Markets need to digest this speech and remind themselves they and the Fed - are still data dependent," said Mr Jack McIntyre, portfolio manager at Brandywine Global Investment Management. Although Mr Powell struck a dovish tone, "now the data has to back it up".

As at Aug 23, the next big wagers on rate cuts were already coming into focus. Traders added to bets on a half-point of rate cuts in September. And the increasingly weak greenback was emerging as the currency of choice for a new wave of so-called carry trades involving risky bets made with borrowed money.