Federal Reserve chairman signals cut in U.S. interest rates

A currency trader walks by the screens showing the foreign exchange rates at the foreign exchange dealing room in Seoul South Korea Monday

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The Dow executed a sudden recovery on Wednesday after Federal Reserve Chair Jerome Powell appeared to signal that the U.S. central bank will capitulate to Wall Street's rabid desire - and President Trump's frequent demands - for an interest rate cut.

In prepared remarks to a congressional committee, Powell said concerns about trade policy and a weak global economy "continue to weigh on the USA economic outlook" and the Fed stood ready to "act as appropriate" to sustain a decade-long expansion. In addition, annual inflation has dipped further below the Fed's annual target level. The Dow Jones Industrial Average fell 22.65 points, or 0.1%, to 26,783.49.

Powell and James Bullard, who was the only dissenting vote in favour of a rate cut at the Fed's meeting in June, are scheduled to address events this week, potentially providing some clue on the policy makers' next move. However, not all members are completely convinced that rate cuts are necessary at this time as several members voiced that they did not see a strong case for rate cuts when the Fed met last this past June.

President Trump has been highly critical of the Federal Reserve in recent weeks for raising rates too fast, tweeting that it "doesn't know what it is doing".

Not all Fed officials were on board with a near-term rate cut.

The Fed has kept its current benchmark overnight interest rate in a range of between 2.25 percent and 2.50 percent since December.

At one point during the day, traders were pricing in a 100 percent probably of the Fed cutting rates, CNBC reported, citing the CME Group's FedWatch tool. And he must do this all without admitting that the Fed misread the economy when it hiked rates previous year.

Marcus will testify in front of the Senate Banking Committee on July 16 and the House Financial Services Committee on July 17.

'I can't hear you, ' Waters said, urging a more enthusiastic response from the Federal Reserve chairman. She also referred to published reports that Trump had discussed firing Powell.

Powell didn't answer whether he believes Trump has the authority to fire him, but said he meant to serve out his full four-year term.

"My sense is that Powell is more concerned about global financial conditions ... than he is pacified by a strong United States labor market", said Jim Caron from Morgan Stanley Investment Management.

But he warned of economic weakness in other major economies, and a downturn in business investment driven by trade war worries.

After Powell's testimony, the FOMC will release the minutes of its June meeting as well and the greenback's market valuation is likely to continue to drive the pair's price action.

Trump has been criticizing Powell, and the Fed under his leadership, for not adopting a looser monetary policy.

The Fed hasn't cut rates since 2008 at the height of the financial crisis.

Though the threatened tariffs on Mexico never materialized and China and the United States have agreed to resume talks to reach a trade deal, that "did little to alleviate the uncertainty that Fed officials believe is contributing to cooling momentum in global trade and domestic capex plans", Deutsche Bank's USA economics team wrote this week.

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.

Powell has brushed off Trump's attacks, but in his testimony he noted that Congress has granted the central bank "an important degree of independence" to conduct policy "based on objective analysis and data".

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