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Fed Chair Appears Ready to Lower Interest Rates

A China trade war is less imminent and employment strong, but Fed Chair Powell still told Congress that he’s prepared to cut interest rates, possibly this month.

NEW YORK – Federal Reserve Chairman Jerome Powell signaled to Congress on Wednesday that the central bank is prepared to cut interest rates as soon as this month despite an improved employment picture and less incendiary trade battle with China.

Testifying before the House Financial Services Committee, Powell noted that in June, Fed policymakers believed the case for lower rates had strengthened amid the trade tensions, a slowing global economy and muted inflation.

“Since then, based on incoming data and other developments, 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,” Powell said in his prepared testimony.

He later added, “We see the economy as being in a good place, and we’re committed to using our tools to keep it there.”

The testimony appears to signal that the Fed is poised to act despite a somewhat more stable economic landscape.

Last week, for example, the Labor Department reported 224,000 job gains in June, up from a disappointing 72,000 the prior month. And President Donald Trump’s summit with Chinese President Xi Jinping at the G-20 meetings yielded a truce that has Trump deferring a 25% tariff on the remaining $300 billion in Chinese imports not already hit with duties as the two countries continue talks.

Asked by Rep. Carolyn Maloney, D-N.Y., if the strong jobs report has changed the Fed’s outlook, Powell said, “No. We look at a broad range of data.” He added that weakness in Europe and Asia “continues to weigh” on the Fed’s view.

Similarly, Powell noted that despite the reduced volatility in the trade fight with China, the broader standoff between the two countries is unresolved.

“It doesn’t remove the uncertainty that we see,” he said.

And other risks to growth still loom, Powell noted, including a slowing global economy and muted inflation that’s below the Fed’s 2% annual target. As a result, fed fund futures markets still are pricing in a quarter point rate cut at the Fed’s late July meeting, though that’s down from expectations for up to a half-point cut before the summit and June jobs report.

Powell would not specify whether Fed policymakers are leaning toward a quarter or half point cut late this month. “We’ll be looking at a full range of data,” he said, adding that fresh estimates of retail sales and economic growth will be among the data released in coming weeks.

High Frequency Economics expects a quarter-point cut this month and a similar move in September while Capital Economics forecasts a total of three such moves by March.

Powell’s testimony largely echoed his remarks and the Fed’s policy statement after a meeting last month. The central bank left rates unchanged but indicated it was poised to cut them as soon as a July 30-31 meeting amid the growing risks “to sustain the expansion.”

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