All three major USA indices declined on Tuesday as the market was disappointed at Federal Reserve Chairman Jerome Powell's remarks on the central bank's possible monetary policy moves as well as weaker-than expected economic data.
In addition to rising trade tensions, Powell said since May incoming data has raised new concerns about the strength of the global economy, noting tentative signs that investment by US businesses has slowed from earlier this year.
Last week, the Federal Open Markets Committee (FOMC) kept interest rates within the gauge of 2.25-2.5 per cent, saying U.S. economic growth remains solid and sustainable, and the current level of borrowing costs doesn't appear to weigh on GDP expansion.
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Markets were dealt a reality check on Tuesday after Fed Chairman Jerome Powell signalled that a rate cut in July was not a done deal. "I do have the right to do it".
The central bank continues to weigh low unemployment and economic growth against "heightened uncertainties" such as the ongoing US-China trade war, weaker global economic data, and tepid inflation, he said.
The Fed kept its benchmark interest rate unchanged last week and signaled a new openness to a cut in July.
But the central bank paused its rate hike campaign this year as concerns grew that a global economic slowdown and trade conflicts were weighing on the US economy.
Trump believes the USA dollar is too strong, and the euro too weak, and feels the situation could be eased if the Fed lowered rates, a senior administration official said on Tuesday.
"It's insane", he said Wednesday.
"We're pleased that the macro has been stabilized thanks to central banks, but that doesn't mean we are suddenly serene about putting our foot on the accelerator in equities", said Guillaume Lasserre, chief investment officer at Lyxor Asset Management.
But markets showed disappointment with Powell's comments, which suggested a rate cut was not certain.
The remarks drew accusations from Mr Trump that the ECB was deliberately trying to weaken the euro against the dollar to make European exports more competitive - something Mr Draghi quickly denied.
The Fed makes its decisions independently from the White House, but Trump has broken with decades of precedent in directly criticising interest rate rises.
Interest rate futures traders are now pricing in a 33% chance of a 50 basis point cut at the Fed's July meeting, down from 38% earlier, while a cut of at least 25 basis points is seen as certain, according to the CME Group's FedWatch Tool.
Trump in a Tweet on Monday echoed his frustration with the Fed and Powell, whom he has reportedly considered firing.
Powell acknowledged the difficulty in determining the next monetary policy move.
"The feeling was, 'Oh my god, this guy has taken over the Fed, '" he said, of the reactions he heard in China.
Traders work on the floor at the New York Stock Exchange (NYSE) in New York, U.S., June 4, 2019.
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