Powell signals rate cut could be coming soon
Fed chair points to trade tensions, global concerns
– Chairman Jerome Powell signaled Wednesday that the Federal Reserve is likely to cut interest rates late this month for the first time in a decade in light of a weakening global economy and rising trade tensions.
Delivering the central bank’s semiannual report to Congress, Powell said that since Fed officials met last month, “uncertainties around trade tensions and concerns about the strength of the global economy continue to weigh on the U.S. economic outlook.” In addition, annual inflation has dipped further below the Fed’s annual target level.
Powell’s remarks triggered a stock market rally, with the Dow Jones industrial average up nearly 100 points in late-morning trading.
Economists suggested that Powell’s message made a quarter-point rate cut a virtual certainty at the Fed’s meeting this month, with many forecasting further rate cuts to come.
Paul Ashworth, chief U.S. economist at Capital Economics, said he thinks economic growth will slow below a 1% annual rate in the second half of this year, which he thinks will lead to additional quarter-point cuts in December and then March.
Ashworth said a July rate cut would be “insurance against the downside risk that Fed officials believe have mounted in recent months.”
Many investors have put the odds of a rate cut this month at 100%. The Fed’s benchmark rate stands in a range of 2.25% to 2.5% after the central bank raised rates four times last year – action that incited public attacks on the Powell Fed from President Donald Trump.
Trump, who is counting on a strong economy for his reelection campaign, has called the Fed his biggest threat. He contends that the central bank made a huge mistake by tightening credit last year and should be cutting rates now. Trump has argued that last year’s rate hikes have held back economic growth and the stock market.
In his prepared remarks, Powell made no mention of the president’s criticism. He did thank Congress for the “independence” it has given the Fed to operate free of political intrusion. But later, in the question-and-answer PERIWASHINGTON od, Democratic members of the House Financial Services Committee, made clear their discontent with Trump’s attacks.
Rep. Maxine Waters, who leads the committee, declared that “this president has made it clear that he has no understanding or respect for the independence of the Federal Reserve.” She also referred to published reports that Trump had discussed firing Powell.
Asked by Waters what he would do if Trump said he wanted to fire him, Powell replied, as he has in the past, that he intends to serve his full fouryear term.
In other remarks, Powell said that rising federal budget deficits will eventually push up U.S. interest rates, though it may not happen until “way out in the future.”