Powell says economy facing growing uncertainties

Daniel Fowler
June 26, 2019

Chairman Jerome Powell defended the central bank's independence from President Donald Trump and financial markets, both of which seem to be pushing for aggressive rate cuts, in remarks at the Council on Foreign Relations in NY.

"We're human, we'll make mistakes - I hope not frequently - but we'll make mistakes but we won't make mistakes of integrity or character", Powell said.

The remarks come as futures markets have bet decisively that the Fed will cut interest rates next month.

"The Fed is insulated from short-term political pressures", said Powell.

The Federal Open Market Committee held its benchmark just below 2.5% last week, while indicating a readiness to lower it for the first time in more than a decade because of "uncertainties" over the economic outlook.

The baseline outlook for the US economy remains favorable for continued growth, Powell said, but "the risks to this favorable baseline outlook appear to have grown".

St. Louis Federal Reserve Bank President James Bullard on Tuesday said he does not think the US economic situation is dire enough to warrant cutting rates by a half-percentage point at its next meeting in July, even though he pushed to lower rates last week. Powell said Tuesday that the downside risks have increased recently, reinforcing the case for lower interest rates.

For the last several months, Powell has preached patience when it comes to rate-setting policy.

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Powell did not commit to a rate cut but said the central bank will closely monitor incoming data and be prepared to "act as appropriate to sustain the expansion".

Indeed, U.S. -China trade war anxieties found no relief in a White House official's remarks that Trump is "comfortable with any outcome" resulting from a planned meeting with Chinese President Xi Jinping at the Group of 20 summit convening in Japan on Friday.

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Rate-sensitive bank stocks were down 0.3%, as US benchmark yields fell below the closely watched 2% level. They were driven by concern that inflation is stuck below the central bank's 2 per cent target - suggesting that there's room to stimulate the economy, helping to create more jobs and boost wages, without pushing prices too high.

The Fed chair also emphasized that politics should be ruled out during central bank's policymaking.

Powell wasn't the only Fed official not caving to Trump.

But risks to that outlook have grown, he added, as recent progress on resolving trade disputes had deteriorated, producing greater uncertainty.

Trump on Monday tweeted that the Fed "blew it" by not cuttings rates at its meeting last week. The two leaders have been at odds on the terms of a trade deal that could resolve months of disagreements that have led to tit-for-tat tariffs.

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