Fed Chair Powell Signals Rate Cut as Economic Risks Loom

That sentiment seems to be holding up.

James Bullard, president of the Federal Reserve Bank of St. Louis and the lone dissenter in favor of lower rates in June, said on a call with reporters on Wednesday that he would argue for a rate cut of a quarter-percentage point at the next meeting. He has penciled in half a percentage point in cuts before the end of the year. “That would depend on how the economy developed, and especially on how inflation and inflation expectations developed,” he said.

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.

Mr. Powell reiterated that he was not acting at the behest of political pressure, which has included reports that the White House has looked into demoting him from chair to a Fed governor. Asked by a lawmaker what he would do if Mr. Trump tried to fire him, Mr. Powell responded that he would not step down. “Of course I would not do that,” Mr. Powell said. “My answer would be no.”

He added that “the law clearly gives me a four-year term, and I fully intend to serve it.”

Political pressures aside, tepid price gains are making a rate cut more likely. 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.

Fed officials are also increasingly alert to slow wage growth, and Mr. Powell made what might be his strongest comments yet that the labor market was not behaving the way most economists would have expected. Unemployment is at a 50-year low, but wages have yet to rise in the way they typically should if there are more jobs than available workers.

“We don’t have any basis, or any evidence, for calling this a hot labor market,” Mr. Powell said.

“To call something hot, you need to see some heat, and while we hear lots of reports of companies having a hard time finding qualified labor, nonetheless, we don’t really see wages really responding,” he said. “So I don’t really see that as a current issue.”

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. When discussing reasons to potentially cut rates at their June meeting, several Fed officials said they saw less upward pressure on inflation from tight labor markets than they had expected. A few were concerned that inflation expectations had already sunk too low, based on the meeting minutes.

Mr. Powell will get a second chance to convey expectations about a potential rate cut on Thursday, when he testifies before the Senate Banking Committee.

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