Saturday, 17 August, 2019

Fed's Williams says case for a U.S. rate cut is stronger

Lights, Camera, Fed Rate-Cut Action Fed’s Bostic: H1 growth stronger than expected
Russell Knight | 12 July, 2019, 10:26

Federal Reserve Bank of Atlanta President Raphael Bostic told reporters after a speech in Atlanta he's skeptical of the need to cut rates, adding "I am not seeing the storm clouds generating a storm yet".

Powell's statement Wednesday boosted the USA stock market as it confirmed for many investors their expectations that the Fed will cut short-term rates for the first time in a decade at its next meeting in late July.

He said that many Fed policymakers "saw that the case for a somewhat more accommodative monetary policy had strengthened".

At least a couple regional Fed bank presidents do support a rate cut, including St. Louis Fed Bank President James Bullard, and Minneapolis Fed President Neel Kashkari who on Thursday said he is advocating the "stronger medicine" of a half-percent rate cut.

Though the threatened tariffs on Mexico never materialized and China and the United States have agreed to resume talks to reach a trade deal, that "did little to alleviate the uncertainty that Fed officials believe is contributing to cooling momentum in global trade and domestic capex plans", Deutsche Bank's USA economics team wrote this week.

His about-face coincides with heightened trade tensions between the United States and China, and what can only be described as social media bullying by Mr Trump, pushing the central bank to cut rates. "But they are cautious.They haven't stopped, they've just slowed".

The U.S. economy did not change much in the days that followed Trump's May 30 comments on Twitter threatening to impose tariffs on Mexico unless the country met his demands for tougher controls on immigrants crossing its northern border.

ECB's Coeure says markets may be overly pessimistic on inflation
At the same time, net exports declined as a result of strong import growth. Inflation is projected at 3.1 percent this year and 2.5 percent in 2020.

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The Fed, which hiked rates four times past year, has kept its current benchmark overnight interest rate in a range of between 2.25% and 2.50% since December.

Powell will return to Congress tomorrow to testify before the Senate Banking Committee.

Investors expect that cut with near 100% certainty.

In prepared remarks released before the hearing, Powell contrasted the Fed's "baseline outlook" of continued US growth against a considerable set of risks - including persistently weak inflation, a slowdown in other major economies, and a downturn in business investment driven by trade risks.

But he added that his analysis of inflation expectations, based on surveys of professional forecasters and business executives, left him unconvinced that expectations are slipping.

With the Fed's current preferred measure of inflation running at 1.6%, below the 2% target, some policymakers argue the central bank needs to do more or risk losing public trust that it takes the target seriously. Bostic said he is going to go into the July Federal Open Market Committee meeting with an open mind. "We have issues around inflation expectations being soft, and obviously inflation data continuing to run below 2%".

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