Federal Reserve chairman signals cut in USA interest rates

Marco Green
July 12, 2019

In turn, the Federal Reserve will respond as expected for a central bank in its position by cutting interest rates. He mentioned business sentiment, a global slowdown in manufacturing, and a persistently low inflation rate.

Following the release of Powell's prepared remarks, short-dated Treasury rates fell sharply along with the U.S. Dollar.

"When we see this correlation where gold is going up and equity markets are also going higher this is very bullish signal for gold".

But since criticism of the Fed by Mr Trump in May, both investors and the central bank have begun shifting their stance, with markets now expecting a cut of at least a quarter of a percentage point when Fed policymakers meet at the end of the month.

The Fed had hinted at such a cut in June.

"Expectations for a 50 basis point cut had risen after Powell's comments but were lowered again by the CPI".

"I would argue for a 25-basis point cut at the next meeting", Bullard told reporters on Wednesday.

Oanda senior market analyst Alfonso Esparza said: "A July rate cut is fully priced in but a stronger-than-forecast (jobs) report in June put a question mark on how many more cuts the Fed needs to make".

USA inflation rose 0.1% in June, according to the Bureau of Labor Statistics, when consensus had been for no change.

Powell said the Federal Reserve had recently convened a meeting to discuss Libra, but that inter-agency working groups like the Financial Security Oversight Council (FSOC) had not had a chance to meet on the topic yet.

The Fed lifted USA borrowing costs four times in 2018, leaving the Fed Funds rate range at its current 2.25%-to-2.5%, boosting the appeal of US assets in the process and helping to lift the Dollar by 4% against rivals that year.

Although in the near-term it remains incredibly unclear as to where BTC and the aggregated crypto markets are heading next, the Fed Chairman's recent comments about it and its rapid ascent to mainstream discussion is certainly one bullish fundamental factor underlying it.

Bullard also pushed for the Fed to take "insurance" against an economic shortfall.

'It appears that uncertainties around trade tensions and concerns about the strength of the global economy continue to weigh on the United States economic outlook, ' Powell said.

Lower interest rates decrease the opportunity cost of holding nonyielding bullion and weigh on the dollar, making gold cheaper for investors holding other currencies.

Traders are now looking forward to Powell's second day on Capitol Hill as well as the release of inflation data, with observers saying a weak reading could revive hopes for a big July rate cut.

Asked during the hearing whether his future policy decisions will be influenced by political pressure, Powell adamantly denied that they would, and said he would not step down if asked to do so by the president.

Other reports by Click Lancashire

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