October 16, 2019

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

“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.”

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.

After jumping out of the gates by more than 0.7 percent, the SP 500’s gains on Wednesday became more muted throughout trading day. Shortly before 12 p.m., the benchmark index was up roughly 0.5 percent

“Clearly, this dove love is really key to keeping the market suspended higher,” said Michael Purves, chief global strategist at the brokerage firm Weeden Company.

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.

Article source: https://www.nytimes.com/2019/07/10/business/economy/jerome-powell-rate-cut.html?emc=rss&partner=rss

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