Tuesday, March 19, 2024 | Ramadan 8, 1445 H
scattered clouds
weather
OMAN
27°C / 27°C
EDITOR IN CHIEF- ABDULLAH BIN SALIM AL SHUEILI

Powell testimony, Fed meeting highlight case for ‘insurance’

1265369
1265369
minus
plus

WASHINGTON: A confidence shock driven partly by the US trade war is at the centre of an increasingly persuasive argument for Federal Reserve policymakers seriously considering cutting rates for the first time in a decade.


Federal Reserve Chairman Jerome Powell on Wednesday set the stage for the rate cut this month, as records from policymakers’ latest meeting showed increasing fear that a US-China trade war that has done little to directly restrain growth is indirectly causing businesses to hold back on buying equipment, giving workers a raise and hiking their prices.


Those factors have conspired to pose a serious risk of ending the economic expansion by pushing growth and inflation lower. The Fed is getting closer to lower rates to take out “insurance” that does not happen.


Powell used an appearance before his congressional overseers on Wednesday to confirm that the US economy is still under threat from disappointing factory activity, tame inflation and a simmering trade war.


Those are the kinds of uncertainties that “many” policymakers called out as suggesting the need for a rate cut “in the near term,” according to records from the Fed’s rate-setting meeting, which were released shortly after Powell concluded several hours of testimony before the US House of Representatives Financial Services Committee.


“Since then, based on incoming data and other developments, it appears that uncertainties around trade tensions and concerns about the strength of the global economy continue to weigh on the US outlook,” Powell said.


At that June 18-19 meeting, some Fed policymakers worried that they may need act to lift inflation that is failing to meet the US central bank’s 2 per cent annual target and to combat a pervasive pessimism among corporations that they see holding back business investment. Lower rates could “cushion the effects” of shocks from the trade war, according to the minutes’ summary of the case for a cut.


“Powell’s really making the case that an insurance rate cut is important so July is looking much more likely despite the fact we had a pretty good jobs report,” said Chris Zaccarelli, chief investment officer for Independent Advisor Alliance.


GROWING CONCERN


Powell and the meeting records both shed light on what is concerning the Fed about an economy they concede is still likely to grow.


The short version: Global growth is weak, manufacturers are slowing their investments and not raising their prices partly because of the trade war and the US job market is not hot enough to cause worrisome inflation.


Powell focused on “broad” global weakness, rather than good news, insisting that pledges by Washington and Beijing in recent weeks to return to the negotiating table to iron out their differences on trade failed to remove uncertainty.


“Uncertainties around trade tensions and concerns about the strength of the global economy continue to weigh on the US outlook,” Powell said.


In his testimony, the first instalment of two days on Capitol Hill this week, Powell also downplayed a strong June jobs report and dismissed claims that the US labour market is hot. Central banks fight inflation by raising rates when the jobless rate reaches unsustainably low levels, and unemployment is near its lowest levels since 1969.


“We don’t have any evidence for calling this a hot labour market,” Powell told lawmakers. “To call something hot we need to see some heat.” — Reuters


SHARE ARTICLE
arrow up
home icon