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Fed Chair Powell Signals Openness to Rate Cut by Underlining Risks Fed Chair Powell Signals Openness to Rate Cut by Underlining Risks
(32 minutes later)
WASHINGTON — Jerome H. Powell, the Federal Reserve chair, highlighted continuing risks to the United States economy in prepared testimony to lawmakers on Wednesday, the latest signal that an interest-rate cut may come soon.WASHINGTON — Jerome H. Powell, the Federal Reserve chair, highlighted continuing risks to the United States economy in prepared testimony to lawmakers on Wednesday, the latest signal that an interest-rate cut may come soon.
Fed officials said in June that they would monitor incoming data, including the impact of President Trump’s trade war, and act if needed to sustain what is no the longest economic expansion on record. Fed officials said in June that they would monitor incoming data, including the impact of President Trump’s trade war, and act if needed to sustain what is now the longest economic expansion on record.
Since then, “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,” Mr. Powell said in written remarks to be delivered before the House Financial Services Committee. “Inflation pressures remain muted.”Since then, “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,” Mr. Powell said in written remarks to be delivered before the House Financial Services Committee. “Inflation pressures remain muted.”
Investors expect the Fed to cut rates at its meeting at the end of the month amid heightened trade tensions and slowing global growth. Mr. Trump has placed tariffs on $250 billion worth of imports from China, which has retaliated by imposing tariffs on American goods, and it remains unclear whether or when the spat between the two nations will be resolved. Factory indexes around the world are weakening, and domestic price gains have been surprisingly tepid.Investors expect the Fed to cut rates at its meeting at the end of the month amid heightened trade tensions and slowing global growth. Mr. Trump has placed tariffs on $250 billion worth of imports from China, which has retaliated by imposing tariffs on American goods, and it remains unclear whether or when the spat between the two nations will be resolved. Factory indexes around the world are weakening, and domestic price gains have been surprisingly tepid.
Mr. Powell did not explicitly say that an interest-rate cut was coming, but he did point to mounting economic concerns.Mr. Powell did not explicitly say that an interest-rate cut was coming, but he did point to mounting economic concerns.
The Fed’s baseline expectation is for a solid job market and gradually increasing inflation, but “uncertainties about the outlook have increased in recent months,” Mr. Powell said. “Moreover, a number of government policy issues have yet to be resolved, including trade developments, the federal debt ceiling and Brexit” — a reference to Britain’s continuing negotiations to leave the European Union.The Fed’s baseline expectation is for a solid job market and gradually increasing inflation, but “uncertainties about the outlook have increased in recent months,” Mr. Powell said. “Moreover, a number of government policy issues have yet to be resolved, including trade developments, the federal debt ceiling and Brexit” — a reference to Britain’s continuing negotiations to leave the European Union.
The federal debt ceiling may need to be raised early this fall for the government to borrow more money.The federal debt ceiling may need to be raised early this fall for the government to borrow more money.
The 17-member Fed policymaking committee split sharply in June over whether the central bank should cut rates this year, with eight officials projecting a cut before the end of the year and nine pointing to no change or a rate increase. Mr. Powell said at his post-meeting news conference that many of the officials who did not project a rate cut saw the case for one strengthening.The 17-member Fed policymaking committee split sharply in June over whether the central bank should cut rates this year, with eight officials projecting a cut before the end of the year and nine pointing to no change or a rate increase. Mr. Powell said at his post-meeting news conference that many of the officials who did not project a rate cut saw the case for one strengthening.
If the Fed lowers borrowing costs this month, the move may please the president. Mr. Trump has been jawboning the Fed to cut rates for months, aiming a barrage of tweets and comments at the central bank. If the Fed were to lower borrowing costs this month, it might please the president. Mr. Trump has been pressing the Fed to cut rates for months, aiming a barrage of critical tweets and comments at the central bank.
Fed officials operate independently of the White House and strive to ignore political chatter while making rate decisions. Fed officials operate independently of the White House and strive to ignore political chatter when making decisions on interest rates.
But tepid price gains make a cut more likely, especially at a time when the global economy is looking shakier. Inflation climbed just 1.5 percent in the year through May, well below the Fed’s 2 percent target. Weak prices are a problem because they increase the risk of economy-harming deflation, and leave policymakers less room to cut rates in a downturn. But tepid price gains make a cut more likely, especially when the global economy appears shakier. Inflation climbed just 1.5 percent in the year through May, well below the Fed’s 2 percent target. Weak prices are a problem because they increase the risk of economy-harming deflation, and give policymakers less room to cut rates when a downturn comes.
Mr. Powell planned to tell lawmakers that “there is a risk that weak inflation will be even more persistent than we currently anticipate.”Mr. Powell planned to tell lawmakers that “there is a risk that weak inflation will be even more persistent than we currently anticipate.”
Moving rates lower — even just slightly — could signal that the Fed is ready to defend its 2 percent inflation goal, and show that it is prepared to act to offset fallout from the trade war and slowing foreign growth. Moving rates lower, even just slightly, could signal that the Fed is ready to defend its 2 percent inflation goal while showing that it is prepared to act to offset fallout from the trade war and the slowdown in foreign growth.
Fed officials avoid committing to interest rate changes ahead of time, but will sometimes provide a clearer signal about where rates are headed if they think investors are far off-base. Doing so avoids unnecessarily stoking painful market volatility. Fed officials avoid committing to interest rate changes ahead of time, but will sometimes provide a clearer signal about where rates are headed if they think investors are far off-base. Doing so can avoid unnecessarily stoking volatility in the markets.
In his prepared remarks, Mr. Powell made no effort to walk back market pricing for a July cut. The Fed’s pre-meeting blackout period starts July 20, so officials have just this week and next to manage expectations. Mr. Powell made no effort in his prepared remarks to walk back market pricing for a July cut. The Fed’s pre-meeting blackout period starts July 20, so officials have just this week and next to manage expectations.
Mr. Powell is testifying before House lawmakers on Wednesday before appearing before the Senate Banking Committee on Thursday. Mr. Powell is scheduled to appear before the Senate Banking Committee on Thursday.