WASHINGTON – Pointing to a weaker global economy, rising trade tensions and chronically low inflation, Chairman Jerome Powell signaled Wednesday that the Federal Reserve is likely to cut interest rates late this month for the first time in a decade.
Delivering the central bank's semiannual report to Congress, Powell said that since Fed officials met last month, “uncertainties around trade tensions and concerns about the strength of the global economy continue to weigh on the U.S. economic outlook.” In addition, inflation has dipped further below the Fed's annual target level.
The chairman's remarks led investors to send stock prices up, bond yields down and the value of the U.S. dollar lower on expectations of lower interest rates.
Testifying to the House Financial Services Committee, Powell was asked, as he has been before, what he would do if President Donald Trump tried to fire or demote him.
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.
The president has repeatedly accused Powell and the Fed of keeping credit too tight for too long and of thereby holding back the economy and the stock market.
Most experts dispute Trump's assertion that he has authority to either fire Powell or demote him from the chairman's post, and his attacks have raised alarms that he's undermining the Fed's long-recognized independence from political pressure.
Powell's description Wednesday of a more downbeat economic landscape led most economists to conclude that a quarter-point rate cut is a virtual certainty at the Fed's meeting in three weeks, with many forecasting further rate cuts to come. Some characterized a likely rate cut late this month as an “insurance policy” against an economic downturn.
“I think it will be the start of a series of rate cuts,” added Sung Won Sohn, economics professor at Loyola Marymount University in Los Angeles. “Powell wants to provide fuel for the economy down the road.”
Expectations of a pending rate cut drew additional support Wednesday when the Fed released the minutes of its June 18-19 meeting. The central bank held rates unchanged then, but the minutes showed that some officials felt looser credit could soon be needed to address economic weakness.
Investors have collectively put the odds of a rate cut this month at 100%. The Fed's benchmark rate stands in a range of 2.25% to 2.5% after it raised rates four times last year – action that incited the initial attacks on the Powell Fed from Trump.
In the prepared remarks he delivered Wednesday, Powell made no mention of the president's criticism. He did thank Congress for the “independence” it has given the Fed to operate free of political intrusion.
Powell appears before the Senate Banking Committee today.