BreakingPowell: Fed outlook dimmed by trade concerns
Prepared remarks by US Federal Reserve's chairman Jerome Powell ahead of his appearances before the Senate and House of Representatives have been released, showing that the central bank might well be open to cutting interest rates.
Mr Powell mentioned that uncertainty over how long the US-China trade war will continue leading to a downturn in business investment, together with persistently
weak inflation and slower growth in other major economies, were weighing on the Fed's "baseline outlook" of continued US growth, and the central bank stood ready to "act as appropriate".
"Apparent progress on trade turned to greater uncertainty,
and our contacts in business and agriculture reported heightened
concerns over trade developments," said Mr Powell, noting that
business investment, an important component of economic growth,
"seems to have slowed notably" in recent months.
"There is a risk that weak inflation will be even more
persistent than we currently anticipate" and not prove as
transitory as Fed officials have often insisted, he added.
Since December, the Fed has kept its benchmark overnight interest
rate in a range of between 2.25% and 2.5%.
Trump still wants interest rates cut
The US President Donald Trump has told reporters that he still wants the US Federal Reserve to lower interest rates, because he feels this would further boost the economy.
President Trump has repeatedly criticised the central bank and its chairman Jerome Powell, asking that interest rates be kept low, after interest rates were raised four times since Mr Powell started in February 2018.
Mr Trump called for the Fed to restart quantitative easing (QE), a practice where a central bank pumps money into the economy through buying assets such as government bonds.
QE was launched in the US in 2008 amid the financial downturn and the great recession. The Fed stopped it in 2014 and is running down the assets it bought during that time.
Investors breathe a sigh of relief...for now
Richard Flynn, UK managing director at Charles
Schwab, says that while the better than expected US job figures will cool fears of a recession, he says: "Investors still face uncertainty around slowing global
economic growth and an ongoing US-China trade war, despite assurances at the
G20 that talks would resume."
He says: “Equity markets may have breathed a sigh of relief for now,
but this is by no means the end of the trade war drama.
"A highly anticipated
interest rate cut later this month could result in a welcome spike in borrowing
and business investment, but the burning question is whether the Fed has
sufficient ammunition to offset a slowdown, if and when it arrives.”
Japan's Nikkei rose 16.80 points to 21,719.13 while the Hong Kong's Hang Seng edged up 23.06 points to 28,818.83.
US businesses are expected to have added 160,000 jobs in June, compared to 75,000 in May.
No room for Trump in US Fed talks
US President Donald Trump has been more than a little vocal about what he thinks the Federal Reserve should do with interest rates - but that has no bearing on the central bank's policymakers, says Loretta Mester.
The president of the Cleveland Reserve tells the BBC: "I can tell you that politics does not enter that room.
“Of course there are people around that table who hold different views
about the economy…It’s more of a technocratic institution than a political
institution. And that’s really important because you do not want short-run
political concerns to influence monetary policy.”
US Fed 'must wait for more signs' before rate cut
America’s central bank should wait for more signs that the
economy is slowing down before cutting interest rates, according to one of its
Loretta Mester, president of the Cleveland Reserve, says she
wants to see more evidence of a slowdown before supporting a rate cut.
Speaking to the BBC, Ms Mester said: “One thing about the US economy over this whole expansion is
it’s been very, very resilient to a number of uncertainties, to a number of
shocks, and to a number of headwinds. And I just need to see a little more
evidence before I change my most likely scenario [of steady economic growth].”
Inside America's central bank
The US Federal Reserve is America's central bank - charged with oversight of monetary policy, banking supervision and financial services. What we usually hear about the Fed, though, tends to centre on interest rates - one of the most important tools in the promotion of economic growth across the nation. And since Donald Trump secured the presidency, we're also heard a lot of criticism of the Federal Reserve - under the chairmanship of first Janet Yellen and then Jerome Powell. So how does it all work? Fergus Nicoll spoke to Loretta Mester - CEO of the Cleveland Federal Reserve Bank.