Published: Wed, June 26, 2019
Markets | By Erika Turner

US Fed 'grappling' with Need for Rate Cut: Powell

US Fed 'grappling' with Need for Rate Cut: Powell

"Libra's a new thing; we are looking at it very carefully", Powell said in response to an audience question after a talk at the Council on Foreign Relations in NY.

St. Louis Federal Reserve Bank President James Bullard on Tuesday said he does not think the US economic situation is dire enough to warrant cutting rates by a half-percentage point at its next meeting in July, even though he pushed to lower rates last week.

The Dow Jones Industrial Average dropped 0.7 per cent to 26,548.22, while the broad-based S&P 500 tumbled 1.0 per cent to 2,917.38.

Powell said that "many" members of the Fed's policy committee believe the case to cut rates "has strengthened".

Trump on Monday tweeted that the Fed "blew it" by not cuttings rates at its meeting last week.

For the last several months, Powell has preached patience when it comes to rate-setting policy.

Trump reportedly has considered either firing Powell or demoting him from the chairman's job but has been told by the White House legal team that he does not have the power to do either.

Powell, speaking at the forum in NY, said that "authority for overseeing Libra is going to be in a number of places but I think the big picture is we're going to be looking really carefully at it".

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"I think we have long experienced that when you see central banks lacking those protections, you see bad things happening", he said.

The baseline outlook for the US economy remains favorable for continued growth, Powell said, but "the risks to this favorable baseline outlook appear to have grown". This will be their first face-to-face meeting after trade talks failed in May that led to increase US tariffs on imports of Chinese goods.

He pointed in particular to the near-collapse of US-China trade talks last month.

Trump's moves sent financial markets tumbling because of concerns the trade conflict could end the current 10-year economic expansion, which in July will become the longest in USA history.

In addition to rising trade tensions, Powell said since May incoming data has raised new concerns about the strength of the global economy, noting tentative signs that investment by US businesses has slowed from earlier this year.

Richmond Federal Reserve President Thomas Barkin said there was a risk of recession for the United States but when asked if a rate cut might be needed this year, he said: "I don't know".

Fed officials are now split between whether to continue indefinitely holding rates level for the remainder of the year or to make at least one, if not two, rate cuts in the second half amid intensifying trade tensions.

Bullard last week said he had dissented at the Fed's June policy meeting because he felt that weak inflation and uncertainties about the economic outlook supported a rate cut.

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