Fed opens door to rate cut amid growing 'uncertainties'

Saturday, 22 Jun, 2019

"I think the law is clear", said Powell.

But he cautioned that it is important they not overreact to single bits of data or a "short-term swing in sentiment".

Mr Powell declined to wade into that debate or comment on the exchange rate, saying only that the Fed does not use interest rate policy to influence the American currency.

Draghi's comments sent the value of the euro tumbling against the dollar, prompting an angry tweet from Trump accusing the European Central Bank leader of acting to weaken the euro to gain a competitive trade advantage against the United States. Below are some key takeaways as reported by Reuters. In Trump's line of thinking, he could demote Powell to be a board governor, but isn't planning to do so right now, the people added. "So we'll see what happens". "That will be a chance to put on new positions to sell the dollar".

Mr Trump slapped new tariffs on China on May 5, took other steps that upended markets, and yet of late has sent hopeful signals of progress in the dispute when he meets Chinese officials next week - hard terrain for the Fed to navigate. "They're going to be making an announcement very soon". "You have to have an independent Federal Reserve".

And the central bank now forecasts economic growth of 2.1% this year.

Donald Trump on Tuesday also bashed European Central Bank chief Mario Draghi, saying his signal of more stimulus ahead would put the USA at a disadvantage against a weaker euro, which would make American exports less competitive.

Complicating the timing of possible rate cuts is an escalation of attacks on the Fed by Trump as he gears up for his 2020 re-election campaign.

China has confirmed that President Xi Jinping and U.S. President Donald Trump will meet on the sidelines of G20 next weekend.

In its policy statement, the Fed removed the word "patient", which market analysts interpreted as a signal that at least one rate cut - perhaps two - could come at future meetings this year.

The Fed hasn't cut interest rates in almost 11 years.

The Fed "should take strong action to re-anchor inflation expectations at our 2 percent target and support strong job growth, higher wage growth, and sustained economic expansion", said Kashkari, who has consistently opposed recent rate hikes. They justified the move on the back of benign inflation, while their economic assessment is reasonable upbeat. Given that the FOMC is split about the path forward, no change is the easy compromise for the moment. The president has called for lower interest rates as he seeks to offset the headwinds created by his trade war with China and to create a favorable backdrop for his re-election campaign next year.

Powell also stopped referring to weak inflation as "transient".

Said T. Rowe Price in its 2019 midyear outlook: "Heading into the second half of 2019, senior T. Rowe Price investment leaders remain cautiously positive in their outlooks about global economies and financial markets, but they warn that escalating trade disputes and populist politics in many regions have created notable downside risks".

But Clarida's description of the current 1.5 percent inflation rate expected this year as "close" to the Fed's 2 percent target suggested less compulsion to move soon.