Powell signals rate cut likely at end of July
Fed chief calls independence of the central bank vital
WASHINGTON — Federal Reserve Chair Jerome Powell had two messages for Congress on Wednesday: Central bank independence is critical and an interest rate cut is likely at the end of July.
President Donald Trump has repeatedly bashed the Fed, blaming Powell and his team for harming the economy by keeping interest rates too high and threatening to try to remove Powell as chair if the situation doesn’t change.
Powell hinted Wednesday that a cut is likely to happen this month because Trump’s trade war and slowing growth abroad are starting to bite.
“Since (June) ... it appears that uncertainties around trade tensions and concerns about the strength of the global economy continue to weigh on the U.S. economic outlook. Inflation pressures remain muted,” Powell said during his testimony to the House Financial Services Committee.
U.S. stocks hit record highs with the S&P 500 index crossing 3,000 for the first time ever. Wall Street is pricing in a near 100 percent probability of a reduction in interest rates at the Fed’s July 31 meeting.
“Jay Powell fully endorsed the July rate cut and did ... nothing to pull the markets back from that expectation,” Peter Boockvar, chief investment officer at the Bleakley Advisory Group, wrote to clients.
Many, including economist Ed Yardeni, president of Yardeni Research, say the latest stock market highs are a direct result of “Powell’s Pirouette” on policy. At the start of the year he wanted to be “patient” on any changes to interest rates cuts, but in June he changed to signal that a rate cut was now likely even though the economy remains solid.
The U.S. economy is doing “reasonably well,” Powell said, but he noted that business investment has “slowed notably,” likely because of the uncertainty around trade and global growth. He also stressed that the economic gains have not been shared evenly by everyone. Hispanics, African Americans and those in rural communities are continuing to have a harder time finding jobs that pay well.
Investors confidence in a rate cut was further boosted by the release Wednesday of the minutes for the Federal Reserve’s June 18-19 meeting that said most of the board’s officials expressed concern that the outlook for the U.S. economy was weakening, and many said the Fed should soon cut rates if uncertainty continued to weigh on growth.
Some businesses, particularly in manufacturing, have pulled back on spending and hiring because of greater uncertainty about U.S. trade disputes, Fed officials said, according to minutes. Slower global growth is also dragging on exports, they noted.
For many Fed policymakers, reducing short-term interest rates “would be warranted in the near term should these recent developments prove to be sustained,” the minutes say.
During Powell’s testimony, numerous representatives tried to get him to comment on whether a minimum wage increase to $15 an hour would be a wise idea, but he refused to offer any opinions on that or other contentious political issues like trade policy.
“The question of the minimum wage is squarely in your court, not ours. We just don’t take a position,” Powell said.
Trump is making the economy a centerpiece of his reelection campaign and he wants the Fed to help boost growth ahead of the 2020 election.
Powell has stressed that the Fed will do what is best for the economy. “Congress has given us an important degree of independence so that we can effectively pursue our statutory goals based on objective analysis and data,” he said. “We appreciate that our independence brings with it an obligation for transparency so that you and the public can hold us accountable.”
The benchmark interest rate is 2.35%. The Fed is expected to lower the rate to about 2.1% by the end of the month.
Associated Press contributed.