Fed Chair Powell Signals Openness to Rate Cut and Stock Market Rallies

Fed Chair Powell Signals Openness to Rate Cut and Stock Market Rallies

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President Trump announced Jerome H. Powell as head of the Federal Reserve in 2017 at the White House. He has since criticized Mr. Powell for not doing enough to bolster the economy.

Tom Brenner/The New York Times

WASHINGTON — Federal Reserve Chair Jerome H. Powell signaled that an interest-rate cut may come soon, sending stocks to a new high as the benchmark S&P 500 stock index traded above 3,000 for the first time.

Mr. Powell, testifying before the House Financial Services Committee, said risks to the United States economy, including trade tensions and global economic weakness, have not abated, suggesting a cut is more likely than not when the Fed meets again later this month.

Fed officials said in June that they would monitor incoming data, including the impact of President Trump’s trade war, and act if needed to sustain the economic expansion. Since then, “it appears that uncertainties around trade tensions and concerns about the strength of the global economy continue to weigh on the U.S. economic outlook,” Mr. Powell told lawmakers. “Inflation pressures remain muted.”

Investors expect the Fed to cut rates at its July 30 to July 31 meeting amid heightened trade tensions and slowing global growth. Mr. Trump has placed tariffs on $250 billion worth of imports from China, which has retaliated against American goods, and it remains unclear whether or when the spat between the two nations will be resolved. Factory indexes around the world are weakening, and domestic price gains have been surprisingly tepid.

While Mr. Powell didn’t explicitly say an interest-rate cut is coming, he pointed to mounting economic concerns and made no effort to walk back market pricing for a July cut. The Fed’s pre-meeting blackout period starts July 20, so officials have just this week and next to manage expectations.

Fed officials avoid committing to interest rate changes ahead of time, but will sometimes provide a clearer signal about where rates are headed if they think investors are far off-base. Doing so avoids unnecessarily stoking painful market volatility.

The Fed’s baseline expectation is for a solid job market and gradually increasing inflation, but “uncertainties about the outlook have increased in recent months,” Mr. Powell said. “Moreover, a number of government policy issues have yet to be resolved, including trade developments, the federal debt ceiling, and Brexit.”

Brexit refers to Britain’s ongoing negotiations to exit the European Union. The federal debt ceiling may need to be raised early this Fall in order for the government to borrow more money.

And while the United States and China have agreed to restart trade negotiations, Mr. Powell said that did not guarantee an end to a trade war that has begun to inflict economic damage around the globe.

“We’ve agreed to begin discussions again with China — while that’s a constructive step, it doesn’t remove the uncertainty,” Mr. Powell said, saying that a strong June jobs report didn’t change the outlook on interest rates. “The uncertainties around global growth and trade continue to weigh on the outlook, in addition, inflation continues to be muted.”

The 17-member Fed policymaking committee split sharply in June over whether the central bank should cut rates this year, with eight officials projecting a cut before the end of the year and nine pointing to no change or a rate increase. Mr. Powell said at his post-meeting news conference that many of the officials who did not project a rate cut saw the case for one strengthening.

If the Fed lowers borrowing costs this month, the move may please the president. Mr. Trump has been jawboning the Fed to cut rates for months, aiming a barrage of tweets and comments at the central bank.

Fed officials operate independently of the White House and strive to ignore political chatter while making rate decisions.

But tepid price gains make a cut more likely, especially at a time when the global economy is looking shakier. Inflation climbed just 1.5 percent in the year through May, well below the Fed’s 2 percent target. Weak prices are a problem because they increase the risk of economy-harming deflation, and leave policymakers less room to cut rates in a downturn.

Mr. Powell told lawmakers that “there is a risk that weak inflation will be even more persistent than we currently anticipate.”

Moving rates lower — even just slightly — could signal that the Fed is ready to defend its 2 percent inflation goal, and show that it is prepared to act to offset fallout from the trade war and slowing foreign growth.

But Mr. Powell once again reiterated that he was not acting at the behest of any political pressure, including reports that the White House has looked into demoting him from chair to a Fed governor. Mr. Powell, asked on Wednesday what he would do if Mr. Trump called and attempted to fire him, responded that he would not step down. “Of course I would not do that,” Mr. Powell said. “My answer would be no.”

Pressed for further comment, Mr. Powell reiterated that “I have kind of said what I’ve intended to say on the subject, and what I’ve said is that the law clearly gives me a four-year term, and I fully intend to serve it.”

Mr. Powell is testifying before House lawmakers on Wednesday before appearing before the Senate Banking Committee on Thursday.

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