Jerome Powell may well be quite pleased with the reaction to his speech: markets have got the message that interest rate cuts are here – but traders and economists still don’t know what the pace of cuts over the next few months will be.

CME FedWatch suggests traders have shifted their bets slightly towards a 0.5 percentage point cut on 18 September, but the consensus is still for a 0.25 percentage point cut.

The probability of the latter is at 67.5%, down from 71.5% earlier, according to probabilites implied by derivative transactions.

The Russell 2000 index, which tracks smaller US-focused stocks, is up by 2.5%, indicating that traders think the Federal Reserve is committed to supporting the US economy.

The US dollar is down by 0.5% against a basket of currencies. The euro is up by 0.6% against the dollar.

Could a 0.5 percentage point (50 basis points) cut be in play in September after what International Financing Review described as Powell’s “forceful tone”?

Stephen Brown, deputy chief North America economist at Capital Economics, a consultancy, said:

Fed Chair Jerome Powell’s dovish tone at Jackson Hole today and pledge to do “everything we can to support a strong labour market” implies that a 50 basis point cut could be on the table at the September meeting, although such a move might require a further rise in the unemployment rate in the August employment report, which we judge to be unlikely.

In an unmistakably dovish speech, Powell focused on the near-term outlook for policy in the context of the recent weak July Employment Report. While Powell noted that “rising unemployment has not been the result of elevated layoffs, as is typically the case in an economic downturn”, he stressed that “the cooling in labor market conditions is unmistakable” and that “we do not seek or welcome further cooling in labor market conditions”.

Recognising the risks of a further rise in the unemployment rate, Powell noted that the “current level of our policy rate gives us ample room to respond” and that “we will do everything we can to support a strong labour market”. Given that the July meeting minutes released this week explicitly mentioned the potential for a 25 bp cut, the lack of any guidance on the size of the move next month suggests that Powell is keeping his options open, simply noting that the “pace of rate cuts will depend on incoming data, the evolving outlook, and the balance of risks.”

Investors have also snapped up bonds, pushing up their prices.

The yield on the US 10-year Treasury, which moves inversely to prices, fell by six basis points (hundredths of a percentage point). UK gilt yields also fell.

Wall Street stocks gained throughout the speech, with the S&P 500 up by 1% in the minutes after Powell finished.

The tech-focused Nasdaq is up by 1.4%, while the Dow Jones industrial average has also gained 1%.

The US dollar has dipped, stocks have jumped, and bond yields have fallen as markets read that speech as dovish.

The dollar is down by 0.45% against a trade-weighted basked of currencies.

Powell says:

That is my assessment of events. Your mileage may differ.

The pandemic was an extraordinary situation, Powell says. There is a lot still to learn that will require humility in a review of past policy.

And with that, the speech is over.

It was far from assured that the inflation anchor would hold, Powell says.

Anchored inflation expectations can facilitate disinflation without the need for slack, he says – in comments that suggest he thinks a “soft landing” without a recession is possible.

The fall in inflation – without a sharp rise in unemployment – has been very welcome, Powell says.

The unwinding of inflationary factors took longer than expected, but it did eventually happen. He says:

The labour market … is no longer a source of inflationary pressures.

The global nature of inflation that followed in 2022 – thanks in part to Russia’s invasion of Ukraine – was unlike anything seen since the 1970s, Powell says.

The Federal Reserve was “utterly committed to avoiding” the long-lasting inflation of the 1970s.

Some people said a recession would be required to fight inflation in 2022.

Now Powell is laying out the post-pandemic economic situation.

The pandemic wreaked havoc on the labour market, Powell says. It did not return to its pre-pandemic trend until mid-2023.

Inflation spiked in 2021 with “extremely large” increases in prices from products in short supply such as cars. Those spikes were expected to be transitory. He says

The good ship transitory was a crowded one … I think I see some former shipmates out there today.

The case for the transitory inflation theory “turned hard”, requiring a strong response from the Federal Reserve in late 2021 going into March 2022.

Powell says:

My confidence has grown that inflation is on a sustainable path back to 2%.

There has been a slowdown from the previous frantic conditions in the labour market, and labour market conditions are less tight than in 2019, before the coronavirus pandemic.

The labour market has cooled considerably from its formerly overheated state.

We do not seek or welcome further cooling in labour market conditions.

Here is an interesting chart from Reuters. It shows that Jerome Powell’s speeches at Jackson Hole have for the most part reassured stock market investors – but twice they have prompted big declines.

The most notable decline came in 2022, when Powell warned that the fight againt inflation – at that time rising because of coronavirus pandemic disruption – would cause “pain” for Americans.

The big decline in 2022 drags down the average performance of the S&P 500 on the day of the speech to a decline of 0.6%.

Wall Street has opened, and with less than half an hour to go until the closely watched speech from Jerome Powell, US stock markets are apparently positioning for a dovish Fed that will support the economy.

Here are the opening snaps, via Reuters:

• S&P 500 UP 33.95 POINTS, OR 0.61 %, AT 5,604.59

• NASDAQ UP 153.60 POINTS, OR 0.87%, AT 17,772.95

• DOW JONES UP 180.12 POINTS, OR 0.44%, AT 40,892.90

The time in Jackson Hole is not yet 7:30am, but it appears that monetary policy fans are up with the lark.

The European Central Bank has already cut interest rates once, back in June, but it is lining up for another in September. Reuters reports that unnamed sources have indicated that a September cut is likely.

Reuters wrote that:

A growing number of European Central Bank policymakers are lining up behind another interest rate cut in September and only major data surprises in the coming weeks could delay the move, on and off record conversations with seven sources indicate.

… other sources, who declined to be named, said private, informal conversations are showing broad support for the move, even if most are still awaiting further data before finalising their views.

Investors have grown more sceptical in recent days of the prospects for a 0.5 percentage point cut from the Federal Reserve, according to Henry Allen, a strategist at Deutsche Bank.

He wrote:

For investors, the big question is to what extent Powell validates expectations for a September rate cut, and whether he offers any indication of how big any rate cut might be. Last year, Powell said that they intended “to hold policy at a restrictive level until we are confident that inflation is moving sustainably down toward our objective”. But over the following 12 months, we’ve seen inflation experience a noticeable decline, along with an increase in unemployment. So from both sides of the Fed’s dual mandate, we’ve moved much closer to a point where the Fed have cut rates in previous cycles.

Our US economists’ view is that it will be difficult for Powell to pre-commit to a particular trajectory at Jackson Hole. But they do think his comments will imply that the Fed can begin dialling back the degree of restraint soon, opening the door to a rate cut next month.

Allen also highlighted several messages from Fed officials which suggest they are not on the warpath for a 0.5 percentage point cut:

Boston Fed President Collins said that she didn’t see any “big red flags”, and Philadelphia Fed President Harker said that “I think a slow, methodical approach down is the right way to go”. Meanwhile, Kansas City Fed President Schmid said that he wanted to see more data, saying that “Before we act — at least before I act, or recommend acting — I think we need to see a little bit more.”

There has been another update in the sinking of the Bayesian yacht. Italy’s coastguard has found another body, presumed to be Hannah Lynch, the 18-year-old daughter of entrepreneur Mike Lynch and Angela Bacares.

The recovery of the body completes the first stage of the investigations, although Italian prosecutors are investigating manslaughter charges related to the tragedy, in which seven people died.

You can read the full story here:

We now have the other side of the readout from Keir Starmer’s call with Xi Jinping.

The relationship with China has not dominated the opening weeks of the new Labour government, but it will certainly be an important issue. The attitude towards Chinese electric cars could be particularly problematic, given the lead set by the EU and US in imposing steep tariffs on imports.

Economics and trade were not mentioned in a statement from Starmer’s office, however. It said:

As permanent members of the UN security council, the leaders agreed on the importance of close working in areas, such as climate change and global security.

The prime minister added that he hoped the leaders would be able to have open, frank and honest discussions to address and understand areas of disagreement when necessary, such as Hong Kong, Russia’s war in Ukraine and human rights.

The big economic news today will be a speech at 3pm BST by Jerome Powell, the Federal Reserve president. We will be doing a lot more on that in the next few hours, but in the meantime, here is an update on financial markets.

• European stock markets have gained, with the FTSE 100 in London up by 0.3%. Germany’s Dax is up 0.6%.

• There are no very notable gainers on the FTSE 100, although Melrose is the biggest faller, down 6% after investment bank UBS steeply cut its target price for the stock. UBS said that Melrose’s model of sharing in revenues from parts it makes is not as valuable as it has said.

• US stock market futures indicate that Wall Street will start Friday in a positive mood. The S&P 500 benchmark is set to gain 0.5%, the tech-focused Nasdaq is set to gain 0.8%, and the Dow Jones industrial average is on for a 0.4% rise.

• The US dollar has eased, down 0.1% against a trade-weighted basket of currencies.

• Sterling is up by 0.3% against the dollar, with one pound buying $1.31. It is the third consecutive day on which the pound has hit a one-year high, after economic data suggested the economy is running well. It is a whisker short of the highest point since April 2022.

• The euro has gained 0.04% to $1.11.

• US Treasury yields are flat for the day. We will be watching the movements on bond markets closely during and after the speech.

Some interesting news via China’s state broadcaster, CCTV: Keir Starmer, the UK prime minister, has had a first call with China’s president, Xi Jinping.

Here is the brief summary from Agence France-Presse:

Chinese president Xi Jinping said he hoped to achieve “common wins” with the United Kingdom during his first conversation with British prime minister Keir Starmer since he took office last month, state broadcaster CCTV reported Friday.

“China is willing to conduct equal dialogue with the UK side on the basis of mutual respect … and make mutual benefits and common wins the fundamental tone of China-UK relations,” Xi said, according to CCTV.

Time to take a break at Nestlé: the owner of brands ranging from KitKat to Nescafé has announced the departure of its chief executive.

Nestlé’s share price dropped by 2% on Friday in Switzerland after it said that Mark Schneider had departed after eight years at the helm.

The company has missed earnings expectations and its share price is down after regulatory issues and a weakening outlook.

Nestlé said that Schneider had focused on “high-growth categories like coffee, pet care and nutritional health products”, but gave no explicit reason for his departure.

Laurent Freixe, who leads the company’s Latin America business, will take over as chief executive on 1 September.

Schneider said:

Leading Nestlé for the past 8 years has been an honor for me. I am grateful for what we have achieved, having transformed Nestlé into a future-proofed, innovative and sustainable business. I would like to thank the entire Nestlé community for what we have accomplished together and wish Laurent all the best in his new role.

You would hardly envy Ofgem their job: almost everybody agrees that the UK energy market needs deep reforms. Yet there are deep differences, and different priorities that are tricky to tackle without worsening the other.

One thing that most people agree on is that heat pumps are the key part of the solution for residential property.

Heat pump manufacturers argue that the current energy price cap system gives a disincentive to upgrading home heating because it sets electricity prices based on wholesale gas markets.

Russell Dean, residential product group director for Mitsubishi Electric Europe, a heat pump manufacturer, said:

As the latest energy price cap is announced, electricity users, homes with heat pumps, and households that are decarbonising their home heating are continuing to be penalised by an energy market that favours carbon emitting fossil fuels.

The new government has a mandate to decarbonise Britain. De-coupling the price of electricity from gas will help achieve that. This will bring down the cost of electricity, decarbonise home heating and help meet Britain’s net zero target.

It’s important to put the energy price cap increase in the context of the last few years: by standards of the decade before 2019, the UK is still in crisis territory.

Jillian Ambrose, the Guardian’s energy correspondent, writes:

The new cap is broadly in line with the costs of energy last autumn and winter, when it rose to £1,834 between October and December and £1,928 from January to March. However, bills will remain well above the cap set before Russia’s war on Ukraine triggered a global energy market shock, when the winter price was £1,216.

Gillian Cooper, the director of energy at Citizens Advice, said:

Energy bills will now be around two-thirds higher than before the crisis, and with record levels of energy debt and the removal of previous support, people are in desperate need.

Our research shows people are so worried about price increases that one in four say they could be forced to turn off their heating and hot water this winter. We’re particularly concerned about households with children and young people and those on lower incomes, who are most likely to struggle with their heating costs.

You can read our full report here:

Insurer Hiscox has appointed its senior independent director, Colin Keogh, as interim chair after Jonathan Bloomer died this week in the Bayesian yacht tragedy.

Jonathan and his wife, Judy Bloomer, were among those who died after the yacht foundered during a storm after being hit by a waterspout. The Bloomers had joined tech entrepreneur Mike Lynch on the yacht to celebrate his acquittal on US fraud charges.

Jonathan Bloomer, a friend of Lynch who testified at his trial, was the executive chair of Morgan Stanley International as well as chair of Hiscox, the FTSE 250 insurer.

Of the 22 crew and passengers on board, 15 were rescued. Angela Bacares, Lynch’s wife and tech company shareholder, survived the disaster, but Lynch died and their 18-year-old daughter, Hannah, is missing, and presumed dead.

The others who died were Recaldo Thomas, who was the yacht’s chef, Neda Morvillo and her husband, Chris Morvillo, who was Lynch’s longtime lawyer.

Martin Lewis called for a bigger cut in standing charges – and urged the government and Ofgem to work together to sort out the issue.

Lewis has campaigned for several years for reform of standing charges. He said:

For many elderly pensioners they don’t turn their gas on in summer months, but they still pay 30p a day just to have a gas meter.

This move to drop standing charges … has to be done in concert with specific help to help vulnerable high users who have it for medical or disability conditions. The problem with our government is Ofgem is in charge of standing charges; government is in charge of support for vulnerable users. You have to join the two up.

You want to grab both heads and bang them together and say, you two have to work together to make this work.

Lewis said that standing charges are a “poll tax” – one levied at a fixed sum on every individual (or in this case, every household) – and a “moral hazard” because lower energy users do not get the benefit.

Martin Lewis has said he is due to meet Rachel Reeves in a couple of weeks, and that he will raise his proposal with the chancellor then.

The main advantage of his proposal to re-extend winter fuel payments by council tax band is that it could be rolled out quickly, Lewis said.

The government has surprisingly little insight into the earnings of each household, which makes rapid deployment of means-tested payments very tricky. (It’s worth reading this by Robert Colville, head of the Tory-aligned Centre for Policy Studies thinktank, who said: that “database management is both the most important part of modern government, and its most intractable limitation”.)

Lewis said:

It’s an imperfect solution, but it is a workable, quick solution.

The key for me is it’s fine to drop universality, but we’ve gone from everyone having it to just the poorest pensioners on the very lowest incomes. As always it’s those just above the threshold that miss out. We need to look at a broader eligibility criteria if we are going to means test it.

Energy prices dropped earlier this year as the summer months delivered lower demand for gas. But that was “only a brief moment of respite”, said a charity leader this morning.

Joanna Elson, chief executive at Independent Age, which supports older people in financial hardship, is campaigning for the government to reinstate the winter fuel payment.

Chancellor Rachel Reeves last month limited the winter fuel payment to those on pension credit, arguing that wealthier households were receiving a payment meant to help those struggling financially.

Elson said she was concerned that many households who should be eligible will not receive the payment:

As the weather starts to turn colder, older people in financial hardship up and down the country are worried about their budgets. Many are on a low fixed income, and they will now need to find more money to cover their rising energy bills.

To make matters worse for older people in poverty, this bill increase coincides with the ending of the winter fuel payment for people not receiving pension credit. There could be up to 1.2 million older people eligible for pension credit who don’t receive it. On top of that, many are just above the eligibility threshold but still live on a low income and struggle to make ends meet. We are incredibly concerned about the people in later life who will be cut off from a vital source of income worth up to £300 at a time when their bills are rising.

Four in 10 consumers are still having to cut back their non-essential spending due to the cost of living, according to KPMG, an accountant.

Ofgem told British consumers to “shop around”. But that message has not quite got through to households, who are hard-pressed.

Simon Virley, vice chair and head of energy and natural resources at KPMG UK, said:

Rising energy prices will be a huge concern for the many households who are not on fixed deals just as we enter the winter months. Average dual fuel bills remain well above the levels prior to Russia’s invasion of Ukraine and the fact that prices remain slightly below the levels of last winter will be of little comfort to those households.

Switching appetite remains well below the levels seen before the price cap was even introduced. The price cap has effectively become the default tariff over the past 18 months, which limits the incentives for investment and innovation. So, it is important that reform of the retail market remains a priority for the government and the regulator if we want to reap the benefits of a smarter, greener energy system.

The UK’s reliance on imports of fossil fuels – particularly gas – means it is vulnerable to rising global wholesale prices, according to Cornwall Insight, a consultancy.

Cornwall regularly tracks the price cap, using the same calculations as Ofgem to work out where the price cap will be ahead of time. Prices are due to rise further this winter, Corwall said.

The January 2025 cap is projected to rise by an additional £45 to £1,762. This would mark a 3% increase from October’s cap.

Craig Lowrey, principal consultant at Cornwall Insight, said:

As we move into the colder months, a lift in bills, while expected, is certainly not welcome. Unfortunately, a volatile wholesale market, and a country heavily reliant on imported energy has created a perfect storm for fluctuating household bills.

Today’s announcement, coupled with our forecasted energy price hikes in the new year, will only intensify the calls for government action to protect vulnerable households. There is a range of options available for the new government, from social tariffs to targeted support. But with just over a month until the cap increases – coupled with the fact that Parliament in on its summer recess – time is not on their side.

The increase is also likely to reignite the debate over the effectiveness of the cap. While brought in with good intentions, it was only meant as a temporary measure, and some may argue the cap has served its purpose. One thing is clear: the current system is not meeting the needs of households, and without change, this risks being the case on an enduring basis.

It would be unrealistic to expect the market to simply correct itself and return to pre-crisis price levels, especially as bills remain far from historic norms three years on. We hope that Ofgem’s review of the cap, along with a renewed focus on renewable energy by the government, will provide viable solutions, helping to deliver fair and sustainable energy bills for everyone.

The regulator may have said the average energy bill will rise by £12 a month, or £144 a year, but that average masks a lot of variation.

The properties with the worst energy efficiency – a G rating – could rise by as much as £558 a year, according to calculations by Rightmove, a property website. That would leave average bills for those households at £6,140.

By contrast, the most efficient, A-rated properties could pay only £620 annually – so prices would rise by only £56 annually.

Of course, the standard health warning: all of these numbers are average numbers, but the price cap is based on the unit rate, which is actually what is capped. So households can spend more or less than the cap, depending on what energy they use.

Tim Bannister, Rightmove’s property expert, said:

The rising price of energy in recent years means that renters and homeowners are likely having to closely consider their total monthly outgoings when choosing their next home. We know that lower bills is one of the biggest motivators for people to go greener, so we expect over time people will increasingly seek out more energy efficient properties in order to keep bills down over the long-term.

Our research suggests that if something like a dynamic price cap, where energy is cheaper at less popular times of day, was to be introduced, the majority would welcome it if it meant lower bills.

Ofgem’s boss has outlined that there are no easy answers on how to cut energy bills, including via standing charge reform.

Standing charges have increased in recent months, and unlike with energy use, households have no ability to change their usage.

Jonathan Brearley, Ofgem’s chief executive, said:

We are working with government, suppliers, charities and consumer groups to do everything we can to support customers, including longer term standing charge reform, and steps to tackle debt and affordability.

Options such as changing how standing charges are paid and getting suppliers to offer more tariff choices and give customers more control are all on the table, but there are no silver bullets. Any change could leave some low-income households worse off, so it’s important we hear views on our proposals and continue working with the government to see what targeted support could help customers.

Ultimately the price rise we are announcing today is driven by our reliance on a volatile global gas market that is too easily influenced by unforeseen international events and the actions of aggressive states. Building a homegrown renewable energy system is the key to lowering bills and creating a sustainable and secure market that works for customers.