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Fed's Powell reiterates pledge to act appropriately to support U.S. economy

EconomyJul 16, 2019 01:57PM ET
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© Reuters. FILE PHOTO: Federal Reserve Board Chairman Jerome Powell testifies on Capitol Hill in Washington DC

By Leigh Thomas

PARIS (Reuters) - Federal Reserve Chair Jerome Powell reiterated a pledge to "act as appropriate" to keep the U.S. economy humming in a speech on Tuesday that validated expectations that an interest rate cut is on the way.

Many Fed officials said at their most recent meeting that their concern over a U.S. trade war and weak inflation "strengthens the case" for "somewhat more" stimulus, Powell said.

"We are carefully monitoring these developments and assessing their implications for the U.S economic outlook and inflation, and will act as appropriate to sustain the expansion," he said in remarks prepared for delivery at a French government conference in Paris.

Markets regard a rate cut as a certainty after policymakers' July 30-31 meeting. Short-term U.S. bond yields pared their gains for the day after Powell's remarks were published.

The speech comes after a round of strong economic data that Fed policymakers have downplayed. On Tuesday, for instance, data from the Commerce Department showed that U.S. retail sales increased more than expected in June. That report followed earlier data that suggested solid employment growth in June and a pickup in underlying inflation.

The Atlanta Fed lifted its gross domestic product (GDP) estimate for the second quarter by two-tenths of a percentage point to a 1.6% annualized rate after the latest data. The economy grew at a 3.1% pace in the January-March quarter.

Powell said the economy continues to turn in "solid" growth that is helping keep a "strong labor market" on track and support a bounce-back in consumer spending.

But he emphasized inflation short of the Fed's 2% annual target and a basket of "uncertainties" making it harder to be confident in a still-rosy outlook. Beyond an unresolved U.S.-China trade clash, Powell cited a global growth slowdown, U.S. debt ceiling negotiations and Britain's chaotic exit from the European Union.

Powell said the Fed estimates that its preferred inflation gauge, the core personal consumption expenditures (PCE) price index, gained 1.7% over the year ended in June. He said the trends contributing to tame inflation - including a weaker link between unemployment and price gains - are likely to continue.

Between now and the Fed's rate decision, the government will publish PCE and GDP data. The economy is losing speed in part as last year's stimulus from massive tax cuts and more government spending fades.

The Fed's policy rate is currently in a range of 2.25-2.50%, and the bank's last rate increase occurred in December, a hike fiercely criticized by President Donald Trump.

Fed's Powell reiterates pledge to act appropriately to support U.S. economy
 

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Comments (3)
David David
David9 Jul 16, 2019 4:25PM ET
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The US economy right now is banking on a China deal. Without that, our economy has reached it's peak. Without a deal, even if the Fed cut the rates, it ain't going to keep the expansion going. Without a China deal, expect the market to collapse into recession. And if we continue to go against China, we will be dealing with another deep recession.
Tom OKray
Tom OKray Jul 16, 2019 1:52PM ET
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Be prepared the markets and analyst are wrong on banking on a rate cut. Why do you think Powell keeps saying the Fed will act appropriately. They note headwinds but neber say to expect them to cut rates.
John Miller
John Miller Jul 16, 2019 1:49PM ET
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Well that would b a switch.
 
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