US Consumer Price Index up 0.1% in June

Marco Green
July 12, 2019

US underlying consumer prices increased by the most in almost 1-1/2 years in June amid solid gains in a range of goods and services, but that did not change expectations the Federal Reserve would cut interest rates this month. These employers, in turn, raise prices to offset the cost of their higher wages.

Economists point to a range of factors that are holding inflation to ultra-low levels. The Fed Funds rate is now 2.5%.

On oil price outlook, Benjamin Lu, an analyst at Phillip Futures in Singapore said rising USA shale production levels, subdued global economic momentum, and trade uncertainties will check broad gains for crude oil futures.

Mr Powell, in written testimony ahead of his appearance at the House of Representatives Financial Services Committee, said he expected continued USA growth.

Most Federal Reserve officials expressed concern at a meeting last month that the outlook for the US economy was weakening, and many said the Fed should soon cut rates if uncertainty continued to weigh on growth.

The Fed chair said overall growth has also "moderated", and cited the possibility that "weak inflation will be even more persistent than we now anticipate".

USA stocks traded higher, with the S&P 500 briefly crossing the 3,000-point mark for the first time.

The dollar index against a basket of six major currencies stood at 97.055 after falling 0.4% overnight, when it pulled back from a three-week peak of 97.588 in the wake of Powell's comments.

Powell confirmed that the Fed is considering adjusting its stance to help the economy continue to grow.

Shares in Europe and on Wall Street had retreated from last week's optimism over a Fed rate cut after a strong June jobs report on Friday which had reduced expectations of a sharp rate cut this month.

Powell focused on "broad" global weakness, rather than good news, insisting that pledges by Washington and Beijing in recent weeks to return to the negotiating table to iron out their differences on trade failed to remove uncertainty.

"The line "our baseline outlook is for economic growth to remain solid, labour markets to stay strong and inflation to move back up over time" to 2%, suggests to us that any rate cuts will be precautionary and tentative", says James Knightley, chief global economist at ING Group.

The Fed's dual mission, to get unemployment as low as possible while keeping prices steady, balances two forces that have historically worked against each other. "We see business investment having weakened after having been quite strong in '17 and most of '18". When asked whether illegal immigration lowers USA wages, Powell said that extensive research on the subject "has not reached a clear conclusion". Inflation has been below 2% for more than a decade, even as unemployment falls to lows previously thought unsustainable. He mentioned business sentiment, a global slowdown in manufacturing, and a persistently low inflation rate.

Trump has been putting pressure on the Fed to cut the benchmark interest rate and boost the economy, repeatedly criticizing Powell on Twitter and in public comments.

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

"It isn't obvious at all from our current regulatory system that we have in place what we need to assess and provide oversight over this, and I expect we'll be working hard on this", Powell said.

Powell and other Fed officials have expressed hope that a rate cut will make it cheaper to borrow and buy a home or vehicle or make other purchases and thereby speed the economy.

Powell has brushed off Trump's frequent attacks, saying that the Fed does not pay attention to politics.

"Of course, I would not do that", Powell replied.

Asked about Trump's threats on Wednesday, Powell repeated that he intends to serve his full four-year term.

Retaliatory tariffs remain another worry for markets.

In a series of comments and tweets the United States president has accused the Fed of unnecessarily slowing the economy by not cutting rates. Not all policymakers were convinced at the last meeting.

Other reports by Click Lancashire

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