Federal Reserve Chair Jerome Powell said a September interest rate cut is increasingly likely if inflation continues to cool, signaling a possible shift in policy after a period of restrictive borrowing costs.

Inflation and policy outlook

The latest Consumer Price Index report showed prices rising 2.9% year over year, reinforcing expectations that inflation is moving closer to the Fed’s target. Powell stressed that the central bank remains data-dependent and will review upcoming employment and inflation readings before making a final decision.

Markets respond

Investors quickly priced in the prospect of a quarter-point reduction, sending stocks higher. The S&P 500 and Nasdaq both closed at new record highs as traders bet that easier monetary policy could support growth and corporate earnings.

While the outlook has improved for markets, policymakers are still weighing whether inflation is cooling enough to justify a cut. The next round of economic data will likely determine whether September brings the Fed’s first move toward lower rates.