Federal Reserve chair Jerome Powell has indicated again that an interest rate cut from the US central bank is likely at its next meeting later this month as businesses slow investment because of trade disputes and a global growth slowdown.
In the second day of semi-annual testimony on Capitol Hill on Thursday, Powell did not veer from the line he took a day earlier before the House Financial Services Committee, when he pledged the Fed would “act as appropriate” to defend the economy.
That appearance served to cement financial market expectations for benchmark lending rates to be lowered at the conclusion of the Federal Open Market Committee’s July 30-31 meeting.
This time addressing members of the Senate Banking Committee, Powell repeated his litany that three main risks threaten what is now a record-long US economic expansion: trade uncertainty, slowing growth abroad and stubbornly low inflation.
The economy remains generally in “a good place”, he said, and consumer spending remains robust. But the uncertainty stirred by the Trump administration’s multi-fronted trade disputes is weighing on the outlook.
“Business are beginning to hold back on investment, for example,” Powell said in response to a question from Senator Tim Scott, a South Carolina Republican. “We see business investment having weakened after having been quite strong in ’17 and most of ’18.
“Business investment is critical. It has really slowed down here, and one of the reasons is uncertainty around trade and global growth,” Powell continued.
“I think many of my colleagues on the FOMC have come to the view that a somewhat more accommodative monetary policy may be appropriate,” Powell said.
Powell held his ground that soft inflation, which has persistently failed to rise to the Fed’s 2 per cent target, presents a significant risk the Fed must guard against.
Earlier on Thursday, the government reported that underlying consumer price inflation ticked up at its briskest pace in nearly a year and a half last month and the labour market shows no signs of weakening.
The Fed, however, tracks a different measure of price pressures, and that has drifted well below target.
Financial markets took Powell’s two days of congressional testimony as a signal that when policymakers next gather in about three weeks, the Fed would cut rates for the first time since the financial crisis.
The Fed’s policy rate is currently in a range of 2.25-2.50 per cent, and the bank’s last rate increase occurred in December, a hike that has been fiercely criticised by President Donald Trump.
Financial futures markets indicate a 100 per cent certainty among investors and traders that the Fed will lower that rate by at least a quarter percentage point this month.