BofA economists on Powell's speech: "In his Jackson Hole speech, Fed Chair Powell sealed the deal for a September rate cut. Fed Chairs don't usually front-run the committee at Jackson Hole, but in this case the July minutes, released on Wednesday, had already said that a "vast majority" of committee members would likely support a September cut. Powell emphasized that the Fed continued to shift its focus from inflation to the labor market mandate: "The upside risks to inflation have diminished. And the downside risks to employment have increased." Powell even took a more pre-emptive stance than before on potential labor market weakness: "We do not seek or welcome further cooling in labor market conditions." Markets interpreted these comments as dovish, with Fed rate cut pricing increasing moderately for 2024 and 2025. Powell does not appear to think recession risks are elevated. He said that the labor market has "cooled considerably from its formerly overheated state," and that "rising unemployment has not been the result of elevated layoffs, as is typically the case in an economic downturn." This suggests to us that the Fed still views the impending cutting cycle as normalization rather than a response to outright weakness in the economy. Although Powell was undeniably a touch dovish today, we do not think he opened the door for 50bp cuts any more than it was already open. Rather, he implicitly endorsed gradual cuts. 50bp cuts will occur only if recession risks rise significantly further. A very weak jobs report could get us there, but the decline in jobless claims suggests that shouldn't be the base case. We retain our forecast that the Fed will cut by 25bp per quarter, starting in September. However, Powell's comments and the BLS's projection earlier this week of large downward revisions to job growth increase the risk of 25bp cuts at every meeting. A further softening in the labor market and inflation data could get us there."