US Fed chief says trade and global growth remain big risk factors

Ann Santiago
July 12, 2019

Looking ahead, markets appear to have "won" in bullying the Fed back into pricing in similar rate cut expectations to before the U.S. jobs report but now we'll have to deal with the bigger question of what comes next.

In his prepared remarks, Powell made no mention of the president's criticism.

The S&P 500 opened at 2,989.30 and hit a high of 3,002.98 mid day.

Stocks briefly added to gains following minutes from the last meeting of Fed policymakers that showed many United States central bank officials thought more stimulus would be needed soon if risks to the economy did not let up. Many forecasters predict that growth has slowed to an annual rate of around 2 percent in the just completed April-June quarter.

Meanwhile, interest rate futures appeared to price in greater odds of an aggressive rate cut of half a percentage point in July.

Although the US Government reported strong jobs growth in June, other major economies' "data have continued to disappoint. across Europe and around Asia, and that continues to weigh", Mr Powell said.

"The Fed Chairman doesn't typically provide strong and direct messages on policy direction, which makes predicting future rate movements all the more hard".

In the first day of closely watched congressional testimony, Jerome Powell said the case for lower borrowing costs "had strengthened" owing to headwinds caused by global trade uncertainty.

The Pound to New Zealand Dollar (GBP/NZD) exchange rate mostly followed the same path as GBP/AUD on Wednesday, with the "Kiwi" jumping in the afternoon on the back of Powell's dovish comments before stabilising overnight as risk appetite slipped.

Powell was pressed by lawmakers of the House Financial Services Committee Wednesday about his lack of optimism in the booming economy. On Thursday, he will address the Senate Banking Committee.

He repeated that the central bank would act appropriately to sustain the expansion, which last week became the longest in history. He contends that the central bank made a huge mistake by tightening credit previous year and should be cutting rates now.

Investors, as tracked by the CME Group, have assigned a 100% likelihood to a rate cut when the Fed meets in three weeks.

"The markets had hoped for Powell to express dovish views and they got what they wanted", said Masahiro Ichikawa, senior strategist at Sumitomo Mitsui DS Asset Management. Powell offered the same terse reply he's given in the past when asked about Trump's attacks on his leadership and the president's insistence that he has authority to remove the chairman: Powell said he intends to serve out his full four-year term, which ends in early 2022.

See live rates for the NZ-US $ below.

That change reflects two developments.

"What happens when it stops cutting (one and one for insurance purposes?) and what happens if the US-China trade sitch [sic] goes awry?"

TRADE TENSIONS: Retaliatory tariffs remain a worry for markets. Slower global growth is also dragging on exports, they noted.

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