Federal Reserve chairman signals cut in United States interest rates

Galtero Lara
Julio 12, 2019

But the ongoing trade wars and signs of trouble in markets outside the USA appear to have convinced more Fed members that there is now a case for cutting rates. Check out the DailyFX Trading Guides. Waters asked Powell on Wednesday.

California Democratic Rep. Maxine Waters pressed Powell at a House Financial Services Committee hearing about whether he would comply if he were to get a phone call from Trump asking him to pack up his stuff and go.

Giving evidence to Congress, Powell said that many Fed members saw the case for action during its June meeting.

The strong comments from the head of the U.S. central bank, the country's top financial regulator, adds to misgivings about the project, which has already produced strong skepticism among top policymakers across the globe.

Federal Reserve Chairman Jerome Powell has pledged to "act as appropriate" to defend US economic expansion against a challenging worldwide backdrop.

The first USA interest rate cut in ten years is likely to happen this month. The monthly jobs report out last week showed that USA hiring rebounded last month.

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Investors fully expect a quarter-point cut at the Fed's July 30-31 gathering, according to pricing in interest-rate futures, though odds were dialed back a bit after a stronger-than-expected US inflation report earlier on Thursday. Almost all officials cut their forecasts for the short-term rate that the Fed controls, compared to the previous meeting, the minutes said.

Credit card rates are generally tied to the prime rate, which in turn is affected by the Fed's benchmark rate. We can measure whether a rate cut is being priced-in by examining the difference in borrowing costs for commercial banks over a specific time horizon in the future.

Eurodollar contract spreads are quickly shifting back to pricing in two 25-bps rate cuts by December 2019 and a third 25-bps rate cut by June 2020; there are -44-bps discounted through December 2019 and -71-bps discounted through June 2020. The Fed has raised rates nine times since 2015, four increases coming under Powell's leadership.

It's worth repeating an observation from three weeks ago.

Investors expect the Fed will cut its benchmark rate, now in a range between 2.25% and 2.5%, by a quarter percentage point at its 30-31 July meeting. Ms Shelton said after the announcement that "this president really gets it" and that she "will strive to support the USA pro-growth economic agenda with the appropriate monetary policy". Furthermore, investors solidified their expectations for at least a quarter-point rate cut at the end of this month.

Powell and the meeting records both shed light on what is concerning the Fed about an economy they concede is still likely to grow. The trade-weighted index was at 72.85 from 72.71. The US Dollar's near-term bias is neutral until more technical clarity is achieved; the budding bullish momentum appears to have been stopped in its tracks today.

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