Published: Thu, July 11, 2019
Markets | By Otis Pena

Fed starting to see a case for rate cuts, Powell hints

Fed starting to see a case for rate cuts, Powell hints

A worrying lack of inflation globally is one reason investors are counting on Federal Reserve Chairman Jerome Powell to sound suitably dovish when testifying to Congress on Wednesday. Almost all officials cut their forecasts for the short-term rate that the Fed controls, compared to the previous meeting, the minutes said.

The S&P 500 index broke through the 3,000-point milestone after he warned that the global slowdown and trade war uncertainty "continue to weigh on the U.S. economic outlook". The market is pricing in a 100% chance of a 25bps cut for this month's Fed meeting, as well as a 28% chance for a 50bps cut. He contends that the central bank made a huge mistake by tightening credit too much last year and should be cutting rates now, arguing that last year's rate hikes have hurt economic growth and depressed the stock market.

Waters and other Democrats urged Powell to stand up to Trump's attacks.

Wall Street just got a shot in the arm from the Federal Reserve.

Lurking in the background, United States and Chinese trade officials held "constructive" talks on trade by phone on Tuesday, White House economic adviser Larry Kudlow said. Powell said Wednesday he would not resign if asked to do so by Trump.

Powell also says the Fed is coordinating with other regulators, such as the Treasury Department, and other central banks overseas. On Thursday, he will address the Senate Banking Committee.

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Since a series of Trump trade-related tweets in late May, both investors and the Fed have begun shifting their stance, with markets now expecting a cut of at least a quarter of a percentage point when the Fed's rate-setting committee releases its next policy statement on July 31.

At the moment, the US economic landscape is a mixed one: The job market appears resilient, but economic growth is slowing. But notably, he added that "many" Fed official saw that the case for a looser monetary policy "had strengthened".

Despite Trump's criticism, White House economic advisor Larry Kudlow told CNBC this week Powell's position as Fed chair is safe "at the present time". Trump and Chinese President Xi Jinping declared a truce last month in what had threatened to become an escalating U.S.

"The Fed's consideration of rate cuts is not only about growth but also about inflation, which remains well below target, and inflation expectations, which were breaking to the downside before the Fed signalled the likelihood of cuts". The minutes show FOMC member concern over soft economic data such as the weak jobs report from April, weakening indicators for business confidence and spending, decreased manufacturing activity and the ongoing trade tensions - mainly between China and the US.

The president did not rule out the possibility last month of either demoting or firing the chairman of the Fed.

Federal Reserve officials judged uncertainties and downside risks to the outlook for the USA economy had increased significantly when they gathered in June, strengthening the case for an interest-rate cut.

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