Published: Thu, July 11, 2019
Finance | By Loren Pratt

Stocks surge after Fed signals probable rate cut

Stocks surge after Fed signals probable rate cut

Most Federal Reserve officials expressed concern at a meeting last month that the outlook for the US economy was weakening, and many said the Fed should soon cut rates if uncertainty continued to weigh on growth.

"Many judged additional monetary policy accommodation would be warranted in the near term should these recent developments prove to be sustained and continue to weigh on the economic outlook, " according to the minutes of the June 18-19 Federal Open Market Committee released Wednesday in Washington.

The Fed, which hiked rates four times past year, has kept its current benchmark overnight interest rate in a range of between 2.25% and 2.50% since December. An absence of inflation pressure makes it easier for the Fed to cut short-term rates.

"We don't have any basis, or any evidence, for calling this a hot labor market", Powell says during testimony before the House Financial Services Committee.

"If we see softer-than-expected inflation data tomorrow and if the advance second-quarter GDP (gross domestic product) reading comes in well below 2.0% on July 26th, we will see the case grow for the first cut to be a 50-basis-point one", said Edward Moya, senior market analyst at OANDA in NY. The dollar index.DXY, tracking the greenback against six major currencies, was last 0.40% lower. He will testify again on Thursday before the US Senate Banking Committee.

When the stock markets crash last winter amid threats of tariffs against China, Trump began to ask his advisers if he could remove Powell from his post at the central bank.

The FOMC minutes were published at the same time and most of the members thought that rising risks from global concern and flagging business confidence supported a rate cut, but that such a cut would "risk financial imbalances".

With investors in contracts linked to the Fed's targeted overnight lending rate putting the probability of a rate reduction at close to 100 percent, "it would be unprecedented for the Fed to not cut", Lavorgna wrote.

After the last Fed meeting, Trump ripped the Federal Reserve, which he said "doesn't know what it's doing".

Though US economic growth remains largely on track, and the jobs report for June showed continued strong hiring, the events of May changed US trade policy from something of a sideshow in the Fed's view to a central concern.

The cooling in United States 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. A cut could lift home and auto sales by lowering the borrowing costs for major purchases. -China trade war and agreed to resume talks toward a deal that would meet the administration's demands to better protect US technology. And he must do this all without admitting that the Fed misread the economy when it hiked rates a year ago.

Still, Wall Street expects Fed chair's congressional testimony to catalyze another messy clash with President Trump, who has made no secret of his disdain for the Powell-run central bank.

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