US Federal Reserve leaves door open for early interest rate cut

Federal Reserve Chairman Jerome Powell has left the door open for a speedy cut in interest rates.

“Uncertainty about trade disputes and concerns about the global economy has recently weighed on the outlook for the US economy,” Powell said to representatives of the House of Representatives, according to a pre-published speech manuscript in Washington. “Inflationary pressures remain subdued.”

Powell also said he would not let President Donald Trump force him to resign. Asked by members of the US House of Representatives if he would pack his bags and leave if Trump called him and asked them to leave, he said no. “Of course I would not do that, my answer would be no,” Powell said. The law clearly gives him a four-year term that he wants to serve.

Trump had repeatedly criticized Powell and demanded interest rate cuts. Powell emphasized at the beginning of his statement that Congress would allow the Fed a high degree of independence.

At the last meeting of the Fed, many participants had already seen increasing reasons for a somewhat loose policy, said Powell, according to the speech manuscript. The statements confirm expectations on the financial markets that the Fed will lower its key interest rates at the end of July. A rate cut of 0.25 percentage points is expected. Currently, the key interest rate is in a range of 2.25 to 2.50 percent. Recently, some economists have expressed doubts as to whether a series of interest rate cuts are actually necessary. They referred to the strong labor market report in June.

Several Fed members felt it necessary to cut interest rates soon for preventive reasons, according to the minutes of the interest rate meeting on 18 and 19 June, published Wednesday. This could help mitigate possible future shocks to the economy.

“Uncertainties have increased over the past few months,” Powell said. He spoke of “countercurrents” which weighed on the economy. Thus, the economy has weakened in some important countries. This weakness could also be transferred to the USA. He also referred to unresolved political problems. These are in addition to trade conflicts, the debt ceiling in the US and Brexit.

According to Powell, the uncertainty is reflected in a decline in corporate investment. One possible cause he sees in trade conflicts and weaker global economic growth. The job market, however, remains healthy.

“A reduction in July is thus likely,” commented economist Bernd Weidensteiner of the Commerzbank. The question remains whether the Fed will lower its key interest rates by 0.25 percentage points or equal to 0.50 points. “After Friday’s fairly strong employment report, a big step is unlikely.” A big step would, according to Weidensteiner, look too much like panic.

The euro’s price rose to the statements and rose to a daily high of $ 1.1251, after he had just quoted just above the mark of $ 1.12. The prices of US government bonds rose. The German stock market dampened its losses. The gold price rose noticeably.