Facebook digital currency plan raises serious concerns: US Fed chief

Andrew Cummings
July 12, 2019

This wasn't enough to prevent the 12-month inflation rate declining to 1.6%, from 1.8% previously, but there was also an upside surprise in the core inflation number. That saw the 12-month rate hold steady at 2.1%.

Minutes from the Federal Open Market Committees June meeting - released Wednesday afternoon - likewise showed Fed participants acknowledged "uncertainties and downside risks surrounding the economic outlook had increased significantly over recent weeks". Although the bank's preferred measure of price pressures, the personal consumption expenditures price index, has been stuck in a 1.5%-to-1.6% range for much of 2019 after falling late previous year.

Powell contrasted the Fed's "baseline outlook" of continued US growth against a set of significant risks: persistently weak inflation, slower growth in other major economies, and a downturn in business investment driven by uncertainty over the duration and intensity of trade wars waged by the administration of US President Donald Trump - especially Trump's year-long trade war with China.

Disagreement over interest rate policy could ease, however, as Mr Powell signalled that a cut could come soon in remarks that sent the S&P 500 surging past 3,000 points for the first time and prompting a fall in the dollar.

Above: Dollar Index shown at daily intervals.

Fed funds futures are close to discounting three 25-bps rate cuts by June 2020; after the June US jobs report, rates markets were pricing in just over two rate cuts.

Powell told Waters that the Federal Reserve had met with Facebook a couple of months before the crypto project was publicly announced.

With Fed rate cut odds climbing again, the US Dollar (via the DXY Index) has been knocked lower, keeping the threat of a major US Dollar top in place.

The dollar was steady on Friday, having regained some traction against its peers after stronger-than-expected US inflation data tempered the prospect of an aggressive Federal Reserve interest rate cut later this month. The Fed Funds rate is now 2.5%.

"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 USA economic outlook", Powell said in testimony before the House Financial Services Committee. "Sterling has galloped over 100pts higher since Powell re-affirmed the bond market's desire for rate cuts".

Federal Reserve Chairman Jerome Powell speaks during a news conference on May 1 in Washington, D.C. He is testifying before Congress this week about economic challenges.

In a series of comments and tweets the United States president has accused the Fed of unnecessarily slowing the economy by not cutting rates.

A trader shows US dollar notes at a currency exchange booth in Peshawar, Pakistan December 3, 2018.

"The statement also offered some positives and sounded more balanced than market moves initially suggested".

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