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Powell Signals Openness to Rate Cut as Uncertainty Dims Outlook

Testimony before Congress supports market expectations for cut

Powell cites trade tension impact on business, weak inflation

By?Craig Torres?and?Christopher Condon

(Bloomberg) –?

Federal Reserve Chairman?Jerome Powell?said downside risks to the economy remain with trade wars softening business investment and weak inflation, signaling that policy makers may be poised to cut interest rates as soon as this month.

Since Fed officials met in June, “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 to U.S. lawmakers Wednesday. “Inflation pressures remain muted.”

The Fed chief’s semiannual testimony supports the market view that the central bank is preparing to reduce borrowing costs at its July 30-31 meeting, despite a?strong?June jobs report. His remarks come amid mounting pressure from President?Donald Trump?to cut rates.

Powell opened his testimony by embracing the central bank’s mandates for maximum employment and stable prices as well as its “independence,” noting that it comes comes with a need for transparency and accountability.

Crosscurrents

He carefully explained the reasons why the policy committee has shifted its views this year, and noted that “crosscurrents have reemerged, creating greater uncertainty.” Despite a current trade war truce with China, Powell continued to stress downside risks to the outlook.

“Uncertainties about the outlook have increased in recent months,” Powell said in the text of his remarks. “Economic momentum appears to have slowed in some major foreign economies, and that weakness could affect the U.S. economy. Moreover, a number of government policy issues have yet to be resolved, including trade developments, the federal debt ceiling, and Brexit.”

Read more: Fed Stands by Openness to Cut Rates in Semi-Annual Report

He noted that policy makers are carefully monitoring developments including the risk that weak readings on inflation could be “even more persistent than we currently anticipate.”

The hearing before the House Financial Services Committee is scheduled to begin at 10 a.m. in Washington.