 |
Federal
Reserve Chairman Jerome Powell testifies before the
House Financial Services Committee on Capitol Hill in
Washington, Wednesday, July 10, 2019. |
WASHINGTON — 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 re-election
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 period, 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 four-year term.
Powell's remarks Wednesday began two days of his testimony on
Capitol Hill. On Thursday, he will address the Senate Banking
Committee.
At the moment, the U.S. economic landscape is a mixed one: The job
market appears resilient, but economic growth is slowing. Many
forecasters predict that growth has slowed to an annual rate of
around 2% in the just completed April-June quarter.
In his testimony, Powell said the economy has fared reasonably well
over the first half of the year. But he noted that "crosscurrents,
such as trade tensions and concerns about global growth, have been
weighing on economic activity and the outlook."
He said that growth in business investment "seems to have slowed
notably," possibly because of concerns over slowing global growth
and the trade battle between the Trump administration and China.
The Fed chairman told the House committee that he thinks average
worker pay isn't rising fast enough to accelerate low inflation,
even with the unemployment rate near a five-decade low. An absence
of inflation pressure makes it easier for the Fed to cut short-term
rates.
Referring to rates, Powell repeated a pledge the Fed made in its
June policy statement that officials would "act as appropriate to
sustain the expansion." But notably, he added that "many" Fed
official saw that the case for a looser monetary policy "had
strengthened."
The Fed hasn't cut rates since 2008 at the height of the financial
crisis.
Trump and Chinese President Xi Jinping declared a truce last month
in what had threatened to become an escalating U.S.-China trade war
and agreed to resume talks toward a deal that would meet the
administration's demands to better protect U.S. technology. That
step eased fears that Trump would extend punitive tariffs to an
additional $300 billion in Chinese goods, in the process inviting
retaliation from Beijing on American exports and likely weakening
both nations' economies.
And last week the government reported that after a tepid job gain in
May, U.S. employers sharply stepped up their hiring in June, an
indication of the economy's durability.
A wild card in the Fed's decision-making has been Trump's highly
unusual public pressure on the central bank to cut rates sharply.
Trump's attacks have raised alarms that he is undermining the Fed's
long-recognized independence from political pressure.
Powell says deficits on
'unsustainable path'
WASHINGTON — The Latest on Federal
Reserve Chairman Jerome Powell's presentation of the
Fed's semi-annual monetary report to Congress. (all
times local):
12:05 p.m.
Rising federal budget deficits will eventually push up
U.S. interest rates, Federal Reserve Chairman Jerome
Powell says, though it may not happen until "way out in
the future."
"The federal budget is on an unsustainable path," Powell
says in testimony before the House Financial Services
Committee. "Ultimately, there's a price to pay here in
higher rates, there has to be."
Yet Powell also acknowledges that Japan currently has
higher public debt, as a percentage of its economy, than
the United States, but still has very low borrowing
costs.
"It's hard to say" how U.S. deficits will play out,
Powell says. |