Jerome Powell again signals Fed is prepared to cut interest rates

Daniel Fowler
July 12, 2019

On Thursday morning, most USA stock index futures were high.

Powell's remarks on Wednesday sent stocks surging as investors believed the Fed chairman was sending his strongest signal yet that the Fed was ready to cut its policy rate, which now stands in a range of 2.25% to 2.5%.

A rate cut at the July 30-31 policy meeting, the first in a decade, is nearly certain after Fed Chairman Jerome Powell on Wednesday told lawmakers the US central bank would "act as appropriate" to protect the economy from rising risks such as trade tensions and slowing global growth.

The central bank chief in his testimony also warned of a number of "important longer-run challenges" which he said the United States "continues to confront".

Trump has spoken out, both in public remarks and on Twitter, several times against the central bank, pressuring for lower interest rates.

Most Federal Reserve officials expressed concern at a meeting last month that the outlook for the US economy was weakening, and many said the Fed should soon cut rates if uncertainty continued to weigh on growth.

The June jump in core CPI reflected solid gains in a range of goods and services, including apparel, used cars, and trucks.

Shelter costs, which make up about a third of total CPI, rose 0.3% on the month, as did owners-equivalent rent, one of the categories that tracks rental prices.

The core personal consumption expenditure price index, the Fed's preferred inflation gauge that excludes volatile food and energy prices, rose 1.6 percent year on year in May, below the 2 percent target.

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Food prices rose by 0.6%, which is about average for a June quarter, while housing remained a positive contributor to overall inflation.

The Labor Department said its consumer price index inched up by 0.1 percent in June, matching the slight increase seen in May. Australia's S&P ASX 200 gained 0.3% to 6,717.70.

Meanwhile, used vehicle prices spiked 1.6 percent and an uptick in medical care costs also helped lift the index, according to the data.

The central bank last month downgraded its inflation projection for 2019 to 1.5% from the 1.8% projected in March.

'There is a risk that weak inflation will be even more persistent than we now anticipate, ' said Powell.

"Importantly, measures of long-run inflation expectations have declined and are likely influencing price and wage setting behavior".

"Local equity markets are reveling in the best of both worlds this morning as local investors love nothing more than lower USA interest rates and a weaker US dollar", Stephen Innes of Vanguard Markets said in a commentary. "I think this would be on the merits". The dollar index against a basket of six major currencies slipped 0.2% to 96.929, extending losses for a second straight session after reaching a three-week peak on Tuesday. He is often quoted in leading print and online publications such as the Wall Street Journal and the Washington Post.

Economists polled by Reuters had forecast the CPI unchanged in June and rising 1.6 per cent year-on-year.

Earlier rounds of U.S. tariffs on trading partners - including China - had been dismissed as of little macroeconomic importance, with the Fed in early May still anticipating its policy rate would remain unchanged for the rest of the year.

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