Fed chairman hints at first interest rate cut in over a decade

Chart Showing GBPUSD

Chart Showing GBPUSD

Wednesday's testimony comes as Powell and the Fed face harsh criticism from President Donald Trump, who last weekend called the agency "our most hard problem" and said its inaction has stifled the US economy.

Since a series of Trump trade tweets in late May, both investors and the Fed have begun shifting their stance, with markets now expecting a cut of at least a quarter of a percentage point when Fed policymakers meet at the end of the month. Last year, Fed officials raised rates four times, in part to stave off the risk of high inflation and in part to try to ensure that they would have room to cut rates if the economy stumbled. "I think this would be on the merits". "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.

"Several" policy makers said a near-term rate cut was warranted from a risk-management perspective because it "could help cushion the effects of possible future adverse shocks to the economy". However, after he's spoken, there is now a 100% chance of a 25-bps rate cut, and a 28% chance of a 50-bps rate cut at the July Fed meeting. The Fed's benchmark rate stands in a range of 2.25% to 2.5% after the central bank raised rates four times a year ago - action that incited numerous public attacks on the Powell Fed from President Donald Trump. He did thank Congress for the "independence" it has given the Fed to operate free of political intrusion.

'I can't hear you, ' Waters said, urging a more enthusiastic response from the Federal Reserve chairman.

"Have no fear", Rep. David Scott, D-Ga., told the chairman.

It was unclear exactly how the Fed could slow the project if it wanted, given the murky regulatory treatment of digital currencies, but Powell's perspective looms large. On Thursday, he will address the Senate Banking Committee.

The question is whether the Fed will still see a good argument for cutting interest rates after the strong U.S. June jobs data.

Powell didn't answer whether he believes Trump has the authority to fire him, but said he meant to serve out his full four-year term. But he noted that "crosscurrents, such as trade tensions and concerns about global growth, have been weighing on economic activity and the outlook".

With Fed rate cut odds climbing again, the US Dollar (via the DXY Index) has been knocked lower, keeping the threat of a major US Dollar top in place. An absence of inflation pressure makes it easier for the Fed to cut short-term rates.

In late 2017, Trump nominated the Powell, an investment banker, to succeed Janet Yellen as chair of the Fed, the world's most powerful central bank.

The Fed hasn't cut rates since 2008 at the height of the financial crisis. Saying that "uncertainties since [the] June FOMC continue to dim [the economic] outlook", it's clear that a lack of progress in the US-China trade war talks is about to provoke Fed Chair Powell and the FOMC into a formal shift in monetary policy.

And last week the government reported that after a tepid job gain in May, U.S. employers sharply stepped up their hiring in June, an indication of the economy's durability.