One reason for a Fed cut: Powell now fears too-low inflation

Lloyd Doyle
July 12, 2019

Last year, the Federal Reserve increased interest rates to prevent inflation, a move Trump has claimed has hurt the US economy.

People shop at an H&M store during the grand opening of the The Hudson Yards development, a residential, commercial, and retail space on Manhattan's West side in New York City, New York, U.S., March 15, 2019.

In response to questioning from one of them, Rhode Island's Jack Reed, Powell said the Fed would neither cut rates to satisfy Trump, nor avoid cutting to defy him if economic data showed that was necessary.

While the U.S. economy has performed "reasonably well" this year, "crosscurrents, such as trade tensions and concerns about global growth, have been weighing on economic activity and the outlook", Fed Chair Jerome Powell said in prepared remarks ahead of his two-day testimony before Congress.

The central bank chief in his testimony also warned of a number of "important longer-run challenges" which he said the United States "continues to confront".

At 1.7%, it would appear to be another reason for the Reserve Bank to cut the interest-driving official cash rate from its present record low of 1.5% in August, as widely expected by economists.

Fed Chairman Jerome Powell on Wednesday signaled that the central bank would slash interest rates during its two-day meeting in late July.

The overall consumer price index rose 0.1% in June, held back by cheaper gasoline and food.

Driving those gains, prices for used cars and trucks jumped by 1.6% and those for apparel by 1.1%.

Some statistics of the June US CPI was comparable to May's CPI with food prices staying steady at 0.3% in May and in June. Australia's S&P ASX 200 gained 0.3% to 6,717.70.

The Fed, which has a 2 per cent inflation target, tracks the core personal consumption expenditures (PCE) price index for monetary policy.

Meanwhile, used vehicle prices spiked 1.6 percent and an uptick in medical care costs also helped lift the index, according to the data.

The president did not rule out the possibility last month of either demoting or firing the chairman of the Fed.

During Powell's appearance before the Senate Banking Committee Thursday, Senator Pat Toomey of Pennsylvania noted that Powell had told House lawmakers the day before that he meant to serve his full four-year term.

"Local equity markets are reveling in the best of both worlds this morning as local investors love nothing more than lower USA interest rates and a weaker US dollar", Stephen Innes of Vanguard Markets said in a commentary.

"Facebook has a couple billion plus users, so I think you have for the first time the possibility of very broad adoption", he said.

Following Mr Powell's comments, the dollar fell against a basket of currencies and the major share indexes opened higher. Stocks on Wall Street were mixed.

A separate Labor Department report showed first-time claims for US unemployment benefits unexpectedly fell in the week ended July 6th.

What do economic experts say about the June CPI?

The Fed is getting closer to lower rates to take out "insurance" that does not happen.

Other reports by Iphone Fresh

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