admin July 10, 2019

Bloomberg News/Landov

Fed Chairman Jerome Powell, shown here during a previous Capitol Hill appearance, has stressed that Congress gives the central bank independence to set policy ‘based on objective analysis and data.’

Federal Reserve Chairman Jerome Powell said Wednesday that the U.S economy is suffering from a bout of uncertainty caused by trade tension and slower global growth and he pledged again that the central bank would act as needed to support demand.

“Since [the Fed meeting in mid-June], 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 U.S. economic outlook,” Powell said in prepared remarks for Congress.

He stuck to the message delivered after the Fed’s June meeting, that uncertainty over trade and the health of the global economy were “crosscurrents” boosting uncertainty.

The Fed chairman said that GDP growth appears to have slowed in the second quarter from the 3.1% annual growth rate in the first quarter, led by a notable slowdown in business investment.

“These concerns may have contributed to the drop in business confidence in some recent surveys and may have started to show through to incoming data,” he said.

The Fed would closely monitor developments “and would act as appropriate to sustain the expansion,” Powell said, repeating a pledge made in June.

The Fed chairman’s comments, in testimony prepared for delivery later Wednesday morning to the House Financial Services Committee, made no mention of the strong payroll growth in June, or the U.S.-China trade truce reached in late June at the G-20 meeting of top finance officials. Some economists have argued that these developments over the past few weeks showed the U.S. economy was on a firmer path than the Fed believed in mid-June.

Robert Perli, an analyst at Cornerstone Macro and a former Fed staffer, said before the testimony that, if Powell’s remarks included an “act as appropriate” pledge, then a rate cut at some point this year “will remain a base case.”

Fed officials will meet again on July 30-31 to set monetary policy. Markets  have a 25-basis-point rate cut at that meeting fully priced in.

President Donald Trump has been pushing Powell to cut interest rates, arguing that Fed hikes last year stopped the economy from experiencing a “rocket” from Republican tax cuts.

The Fed chairman addressed this political pressure indirectly Wednesday, noting that Congress had given the central bank independence to set policy “based on objective analysis and data.”

In his testimony, Powell said the economy has performed “reasonably well” over the first half on 2019.

He noted the Fed’s “baseline” forecast continued to be for “solid” economic growth, strong labor markets and firmer inflation.

“However, uncertainties about the outlook have increased in recent months,” he said.

He noted that a number of government policies, including trade developments, the federal debt ceiling and Brexit, “are yet to be resolved.”

And there is a risk that weak inflation, already well below the Fed’s 2% target, “will be even more persistent than we currently anticipate,” he said.

Stocks turned higher as the prepared testimony hit. The Dow Jones Industrial Average

DJIA, -0.08%

 has been down for three straight days through Tuesday. The yield on the 10-year Treasury note

TMUBMUSD10Y, -0.67%

 was at 2.101%, with the yield curve steepening after the release, led by a drop for Fed-sensitive short-term rates.

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