Saturday, 21 September, 2019

Wall Street touches new highs after comments by Fed's Powell

Chart Showing GBPUSD Federal Reserve chairman signals cut in US interest rates
Ginger Lawrence | 11 July, 2019, 05:53

USA stock futures fell on Wednesday, as investors eyed Federal Reserve Chairman Jerome Powell's remarks later in the day for clues on the central bank's interest rate policy direction.

U.S. Federal Reserve Chairman Jerome Powell said on Wednesday that Facebook's plan to build a digital currency called Libra "cannot go forward" until serious concerns were addressed.

The S&P 500 index broke through the 3,000-point milestone after he warned that the global slowdown and trade war uncertainty "continue to weigh on the United States economic outlook".

Fed Chair Jerome Powell said in prepared congressional testimony that a slowing global economy and trade tensions had strengthened the case for looser monetary policy. The board increased interest rates four times in 2018 but hasn't touched them so far this year.

Mr Powell, in written testimony ahead of his appearance at the House of Representatives Financial Services Committee, said he expected continued USA growth.

At its meeting last month, the Fed's Open Market Committee voted to leave rates unchanged.

Wall Street is all but certain that the end of the Federal Reserve's three-year hiking campaign is here. Expectations for a 50-basis-point rate cut at the July meeting have evaporated, but investors still expect a 25 basis-point cut due to weak inflation and worries about growing business fallout from the U.S.

The cooling in U.S. rate fever has seen bonds give back just a little of their huge rally, with yields on two-year Treasuries rising to 1.917 per cent from the recent trough of 1.696 per cent.

Bank of Canada may diverge from dovish peers as economy rebounds
The bank's Wednesday forecast of 1.3 per cent growth for 2019 is just below the average private sector forecast of 1.4 per cent. The Canadian dollar pared earlier gains following the decision, but was still up 0.3 per cent to C$1.3091 per USA dollar.

Some Fed watchers have suggested that cutting rates now would serve as an insurance policy of sorts by the central bank against a potential economic downturn.

"Powell is setting it up, certainly for a July rate cut", said Jack Ablin, chief investment officer at Cresset Capital Management in Chicago. But with unemployment at close to record lows and the USA economy showing continued strength, the Fed left rates unchanged at it's last meeting.

Mr Powell pledged to "act as appropriate" to defend an economic expansion threatened by trade disputes and a global slowdown.

The Fed last cut rates in 2008 at the height of the financial crisis.

"The Fed's consideration of rate cuts is not only about growth but also about inflation, which remains well below target, and inflation expectations, which were breaking to the downside before the Fed signaled the likelihood of cuts".

His testimony specifically cited risks associated with trade conflicts (read: the US-China trade war) and lagging growth indicators in the global economy.

That step eased fears that Trump would extend punitive tariffs to an additional $300 billion in Chinese goods, in the process inviting retaliation from Beijing on American exports and likely weakening both nations' economies.

Some businesses, particularly in manufacturing, have pulled back on spending and hiring because of greater uncertainty about USA trade disputes, Fed officials said, according to minutes of the June 18-19 meeting released Wednesday.