The Fed funds market is now pricing in a 13.5% chance of a 50 basis point Fed cut in September.
Many market participants are focused on Powell's comments about the labor market.
"If the labor market were to weaken unexpectedly or inflation were to fall more quickly than anticipated, we are prepared to respond," he said.
Yesterday's ADP employment report was soft and today, US initial jobless claims rose to the highest in nearly a year. Tomorrow we get the July non-farm payrolls report.
The bond market is sniffing out some weakness. US 2-year yields are down an additional 8.5 bps today to 4.25%. That's a full point below the bottom of the Fed's current 5.25-5.50% range and a strong signal that parts of the market see a more-aggressive path of cutting.
Yesterday, there was a sense that month-end along with Middle East worries were driving the bond market but as the dust settles today, the bid has gotten even stronger.
