Stocks Jump To Record Highs, Fed Chief Still Has "Uncertainties"

Marco Green
July 12, 2019

However, the report did little to adjust market participants' expectations for the Federal Reserve to cut benchmark interest rates at the end of July, after Fed Chair Jerome Powell in two days of congressional testimony reiterated central bankers' concerns of persistently below-target inflation.

The market firmed in its conviction that a quarter-point cut is coming at the end of this month, and is pricing in nearly three quarters of a point in easing by the end of 2019. Businesses, in turn, would raise prices to offset the cost of higher wages.

The Fed chief stressed at his second day of congressional testimony that the US economy is "in a very good place".

"Since then, based on incoming data and other developments, it appears that uncertainties around trade tensions and concerns about the strength of the global economy continue to weigh on the U.S. economic outlook", Powell said in testimony before the House Financial Services Committee.

"Since then, based on incoming data and other developments, it appears that uncertainties around trade tensions and concerns about the strength of the global economy continue to weigh on the USA outlook", Powell said.

The thirty-year bond auction drew a high yield of 2.644 percent and a bid-to-cover ratio of 2.13, while the ten previous thirty-year bond auctions had an average bid-to-cover ratio of 2.26.

At one point during the day, traders were pricing in a 100 percent probably of the Fed cutting rates, CNBC reported, citing the CME Group's FedWatch tool.

After Powell's announcement, . the Dow rallied on Wednesday, . and the S&P 500 crossed the 3-thousand point mark for the first time in history.

"We're learning that interest rates - that the neutral interest rate - is lower than we had thought and I think we're learning that the natural rate of unemployment is lower than we thought", he said.

The minutes showed widespread concern that the economy is losing steam.

Trump has long insisted lower rates will help the USA economy grow even faster.as he prepares to try and win re-election in 2020.

"We don't have any evidence for calling this a hot labor market", Powell told lawmakers.

In an earlier update, we reviewed the different methods that the various major central banks could respond to the growing threat of trade wars.

Policymakers also appear to be far more anxious about a lack of confidence that is seeping into troubling spending and pricing decisions.

His about-face coincides with heightened trade tensions between the U.S. and China, and what can only be described as social media bullying by Mr Trump, pushing the central bank to cut rates.

The Fed's benchmark rate now stands in a range of 2.25% to 2.5% after the central bank raised rates four times a year ago.

The exchange comes amid unprecedented attacks and attempted influence on monetary policy by President Trump, who has criticised both Mr Powell and the central bank's policy decisions.

She added that members of Congress "have been very much pleased with Powell and the way that he's conducted himself, but I wanted him to reiterate here that he was not going to bow down to the president".

Retaliatory tariffs remain a persistent worry for markets.

Apparel, which has been volatile in recent months, rose 1.1% on the month, while dropping 1.3% annually.

The only question left seems to be: How low will borrowing costs go this month? Not all policymakers were convinced at the last meeting.

Powell is also due to present testimony to the Senate Banking Committee overnight.

Other reports by Click Lancashire

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