Powell Signals That Rate Cut Could Be Coming Soon

A currency trader stands by the screens showing the foreign exchange rates at the foreign exchange dealing room in Seoul South Korea Monday

A currency trader stands by the screens showing the foreign exchange rates at the foreign exchange dealing room in Seoul South Korea Monday

A cut could lift home and auto sales by lowering the borrowing costs for major purchases. He contends that the central bank made a huge mistake by tightening credit previous year and should be cutting rates now.

Uncertainty about trade frictions and global growth continues to weigh on the USA economic outlook, Federal Reserve Chair Jerome Powell said Wednesday, keeping the door open to an interest rate cut this month.

In prepared testimony ahead of a House hearing, Powell highlighted continued uncertainty about trade as a drag on United States growth, amplifying his message from recent appearances that have been widely seen by investors as opening the door to an interest rate cut.

Still, Wall Street expects Fed chair's congressional testimony to catalyze another messy clash with President Trump, who has made no secret of his disdain for the Powell-run central bank.

The central bank raised the benchmark lending rate to 2.25 per cent to 2.5 per cent over four hikes in 2018 in what they called a policy normalization strategy. Talks have since restarted, but more than $350 billion worth of tariffs remain in place with no timeline on progress.

Some businesses, particularly in manufacturing, have pulled back on spending and hiring because of greater uncertainty about USA trade disputes, Fed officials said, according to minutes of the June 18-19 meeting released Wednesday.

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In this context, if the Fed does not intend to ease policy this month, today would be the appropriate time for Powell to level set the market. The monthly jobs report out last week showed that USA hiring rebounded last month.

Last week's jobs report indicated that a surprising 224,000 jobs were added to the economy in June, exceeding the 160,000 predicted by economists.

"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".

It is unclear exactly how the Fed could slow the project if it wanted, given the murky regulatory treatment of digital currencies, but Powell's perspective looms large as the head of one the globe's most powerful regulators. Government bond yields dipped, with two-year Treasuries falling below 1.87%, from around 1.93% earlier Wednesday morning.

Powell indicated during his prepared remarks before Congress Wednesday that a rate cut is impending due to worldwide economic turmoil. "Since the June meeting, and for a period for that, the data have continued to disappoint". According to CME's FedWatch Tool, the market is 100% certain that the Fed will announce the first cut at its July 31 FOMC policy meeting.

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