Fed chairman hints at first interest rate cut in over a decade

Galtero Lara
Julio 12, 2019

Powell said the Federal Reserve had recently convened a meeting to discuss Libra, but that inter-agency working groups like the Financial Security Oversight Council (FSOC) had not had a chance to meet on the topic yet.

Policymakers have dimmed their outlook for the economy since last increasing interest rates in December, citing cooler global growth, below-target inflation levels and ongoing trade tensions. Of course, President Trump wants rates lower as do financial market investors.

At the hearing, Powell received bipartisan support for his independence at a time when the Trump administration is openly attacking the policies of the Federal Reserve.

Lower interest rates decrease the opportunity cost of holding nonyielding bullion and weigh on the dollar, making gold cheaper for investors holding other currencies.

The dollar was steady on Friday, having regained some traction against its peers after stronger-than-expected USA inflation data tempered the prospect of an aggressive Federal Reserve interest rate cut later this month.

Oanda senior market analyst Alfonso Esparza said: "A July rate cut is fully priced in but a stronger-than-forecast (jobs) report in June put a question mark on how many more cuts the Fed needs to make". The Fed Funds rate is now 2.5%.

WSJ Global Economics Editor Jon Hilsenrath and Belpointe Chief Strategist David Nelson on President Trump's comments on the Federal, Reserve, the outlook for Fed policy and the state of the US economy.

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Above: Pound-to-Dollar rate shown at 15-minute intervals.

Markets are still fully priced for a quarter percentage point cut as USA policymakers seek to support a slowing economy.

"Powell is setting it up, certainly for a July rate cut", Jack Ablin, chief investment officer at Cresset Capital Management in Chicago, told the Reuters news agency. "This doesn't suggest that the Fed is seriously contemplating the 100bp of rate cuts that financial markets are now expecting by the end of 2020".

It's raised rates nine times since the end of 2015 but with the growth-boosting effect of 2018's mammoth tax cuts now wearing off and the U.S.

The inflation data, however, had little bearing on a widely expected view of an interest rate decrease this month at the Fed's next monetary policy meeting, analysts said. Although he expected continued United States growth, he warned of economic weakness in other major economies, and a downturn in business investment driven by trade war worries. Get 3-5% more currency than your bank would offer by using the services of foreign exchange specialists at RationalFX.

After raising rates four times past year, the Fed has indicated in January that it would be "patient" with future hikes.

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