Published: Fri, July 12, 2019
Markets | By Otis Pena

Powell Gives the Green Light to an Interest Rate Cut

Powell Gives the Green Light to an Interest Rate Cut

A rate cut at the July 30-31 policy meeting, the first in a decade, is nearly certain after Fed Chairman Jerome Powell on Wednesday told lawmakers the US central bank would "act as appropriate" to protect the economy from rising risks such as trade tensions and slowing global growth.

On balance, the stock market is still being juiced by two-days of dovish-chat from US Chair Jerome Powell. Watch his remarks in the player above.

Powell pointed to "broad" global weakness that was clouding the USA economic outlook amid uncertainty about the fallout from the Trump administration's trade conflict with China and other nations. Economists surveyed by the Wall Street Journal expect the CPI to be flat in June from May and up 1.6 per cent from a year earlier, underscoring the Fed's concerns about weak inflation pressures.

"Expectations for a 50 basis point cut had risen after Powell's comments, but were lowered again by the CPI".

Investors took this as a clear signal the Fed would cut its the benchmark lending rate at the next policy meeting on July 30 and 31.

Trump, who is counting on a strong economy as he heads into a re-election campaign, has called the Fed his biggest threat.

And with companies struggling to find workers amid historically low unemployment rates, he noted that "total immigration has contributed more than half of the growth to our workforce in the last few years so it's important".

Powell made no mention of the president's criticism in his prepared testimony, but he did thank Congress for the "independence" it has given the central bank to operate.

Waters, the chair of the House Financial Services Committee, has also been on a crusade against Facebook's Libra cryptocurrency project - a crusade she continued on Wednesday.

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Powell also said immigrants add to the United States workforce and help boost economic growth.

"Its critical that the public understand that we're always going to do our work objectively", Powell said.

But he warned of economic weakness in other major economies, and a downturn in business investment driven by trade war worries. Powell deflected a question about whether this complicated policy making. Not that this would mark something resembling a correction; more that the weeks of enthusiastic buying of stocks on the basis of easier monetary policy is growing exhausted. The Fed has raised rates nine times since 2015, four increases coming under Powell's leadership.

After raising rates four times a year ago, the Fed has indicated in January that it would be "patient" with future hikes. Those were followed in June by a payrolls report that showed the economy creating a paltry 75k new jobs during the previous month, which stoked fears of a turn for the worse in the labour market.

USA gold futures jumped 1% to $1,424.36.

Powell has been under vast pressure from Donald Trump to cut rates.

US stock index futures were slightly higher Friday morning, amid optimism rooted in expectations of a Federal Reserve rate cut later this month.

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

Trump perceives anything that attempts to rein in economic growth as potentially damaging to his popularity, and has even seen record-high levels of approval ratings in historically critical polls as the economy soars.

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