LONDON — European stock markets closed higher on Friday after Federal Reserve Chairman Jerome Powell gave a clear hint of upcoming interest rate cuts.
The Stoxx 600 index closed up 0.5%, further away from where it began the month despite early August volatility. The British pound rose 0.8% against the U.S. dollar to above $1.319, its highest since March 2022. Meanwhile, the euro rose 0.58% to $1.118.
“The time has come to adjust policy… The direction to move forward is clear, and the timing and pace of rate cuts will depend on upcoming data, the evolving outlook, and the balance of risks,” Powell said in a highly anticipated keynote speech at the Fed's annual meeting in Jackson Hole, Wyoming.
Powell said inflation has “come down significantly” and that the central bank can now focus equally on supporting a strong labor market.
The market had already fully priced in a September rate cut from the Fed, estimating the likelihood of a 25 basis point cut rather than a 50 basis point cut at 67.5% following Chairman Powell's comments.
U.S. stocks rose on Friday morning following the speech.
Bank of England Governor Andrew Bailey is also due to speak in Jackson Hole on Friday.
Bailey highlighted the evolution of UK inflation and the effectiveness of tight monetary policy, and said risks to the outlook from so-called “second-order effects” such as wage increases and pricing were lower than had been expected a year ago.
But he will also warn that less “innocent” scenarios are still possible which would require the Bank of England to “maintain regulation for a longer period”.
These, he is expected to say, “suggest that structural changes in product and labour markets are occurring as a lasting legacy of the big shock we have experienced, which is causing changes on the supply side of the economy.”
In Europe, Nestle shares fell nearly 4% before paring losses slightly after the company announced it was stepping down CEO Mark Schneider and replacing him with veteran Laurent Fressi following poor performance. As of 3:50 p.m. London time, Nestle shares were down 0.45%.
Meanwhile, Hugo Boss shares rose 6 percent after second-largest shareholder Frasers asked to buy more shares, according to a filing with Germany's competition authority seen by Reuters.
