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Fed chair signals openness to rate cut by underlining risks

July 10, 2019 09:54 am

WASHINGTON — Federal Reserve Chairman Jerome Powell highlighted continuing risks to the U.S. economy in prepared testimony to lawmakers Wednesday, the latest signal that an interest-rate cut may come soon.

Fed officials said in June that they would monitor incoming data, including the impact of President Donald Trump’s trade war, and act if needed to sustain what is now the longest economic expansion on record.

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,” Powell said in written remarks to be delivered before the House Financial Services Committee. “Inflation pressures remain muted.”

Investors expect the Fed to cut rates at its meeting at the end of the month amid heightened trade tensions and slowing global growth. Trump has placed tariffs on $250 billion worth of imports from China, which has retaliated by imposing tariffs on U.S. 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.

Powell did not explicitly say that an interest-rate cut was coming but did point to mounting economic concerns.

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,” Powell said. “Moreover, a number of government policy issues have yet to be resolved, including trade developments, the federal debt ceiling and Brexit” — a reference to Britain’s continuing negotiations to leave the European Union.

The federal debt ceiling may need to be raised early this fall for the government to borrow more money.

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. 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.