Fed's Powell affirms rate cut view; see U.S. economy humming

Andrew Cummings
July 12, 2019

Federal Reserve Bank of Atlanta President Raphael Bostic told reporters after a speech in Atlanta he's skeptical of the need to cut rates, adding "I am not seeing the storm clouds generating a storm yet".

U.S. Federal Reserve officials saw a "strengthened" case for the central bank to lower interest rates in the near term when they gathered in June, according to the minutes of the Fed's latest monetary policy meeting.

Financial markets are betting heavily on a rate cut later this month when Fed policymakers meet in Washington to set policy.

On one hand - emphasized by Powell in Congressional hearings Wednesday and Thursday and seconded by the influential chief of the New York Fed and Fed Governor Lael Brainard - global trade and economic risks have put a dent in investment, inflation is well below the Fed's 2% target, and the USA expansion may need a shot in the arm.

President Donald Trump has repeatedly attacked the Fed for raising rates four times past year and has called for a full percentage point cut.

With investors in contracts linked to the Fed's targeted overnight lending rate putting the probability of a rate reduction at close to 100 per cent, "it would be unprecedented for the Fed to not cut", Lavorgna wrote.

Fed staff concluded the rise in world tariffs had a likely "material" impact on the slowdown in global trade previous year, and that "uncertainty surrounding trade policy could be leading firms to delay investment decisions and reduce capital expenditures".

Powell, in appearances on Capitol Hill this week, bolstered expectations such a cut is coming, and focused on the need to protect the United States against fallout from a weak global economy.

Some Fed officials, however, said that while they expected fewer rate hikes than they had in the past, "there was not yet a strong case for a rate cut from current levels".

Williams' remarks represent a sharp shift from his assessment in May, when he was asked whether a rate cut was needed to support inflation.

Barkin said he would be watching economic data released over the next three weeks, including consumer confidence, GDP growth, inflation, and retail spending, and would wait until the meeting itself before forming his view on what action, if any, should be taken.

Bostic said that even recent weak inflation data may not be as worrisome as it might seem.

But his comments on inflation also place him among a group of several Fed bank presidents who, in recent days, have suggested the need for lower rates is not yet convincing.

Other reports by iNewsToday