Fed chair Jerome Powell testifies on the economy, interest rates

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United States stocks ended higher yesterday and the S&P 500 briefly crossed the 3,000-point mark for the first time following Powell's remarks.

Federal Reserve Chairman Jerome Powell set the stage today for the first US interest rate cut in a decade later this month.

Today's minutes were prefaced by Jerome Powell testifying in front of the House's Financial Services Committee this morning as Powell answered questions from members of congress on the Federal Reserves current outlook for the economy. However, he added that "many" Fed official saw that the case for a looser monetary policy "had strengthened".

In prepared testimony before the House Financial Services Committee, Powell said the economic outlook remains tilted to the downside due to "trade tensions and concerns about the strength of the global economy".

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

US Federal Reserve Chairman Jerome Powell said Wednesday that crosscurrents such as trade tensions and concerns about global growth have been weighing on the US economic activity and outlook.

Powell was later asked by Carolyn Maloney, Democratic representative from the state of NY, if the Fed considers a half-percentage-point lowering of the benchmark interest rate during the July 30-31 FOMC meeting.

American Airlines climbed 1.8 per cent as it lifted a key revenue benchmark, even though it said the grounding of the 737 Max would lower second-quarter profits by US$185 million (S$250 million).

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Mr Powell hinted strongly on Wednesday that a cut is likely to happen this month because Mr Trump's trade war and slowing growth overseas are starting to bite.

Wall Street just got a shot in the arm from the Federal Reserve.

The 10-year US Treasury yield was at 2.052 per cent after dropping yesterday from a three-week high of 2.113 per cent following the Fed chair's congressional testimony.

Powell must defend the bank's rapid shift from a December 2018 rate hike to an apparent rate reduction less than one year later.

"There is now economic evidence that the outlook for the US economy is not that great", said Juan Perez, senior currency trader at Tempus Inc in Washington.

In the Fed's monetary policy report issued last week ahead of Powell's testimony, the trade war received its own analysis, a sign of the attention it is getting within the central bank.

To the suggestion that the current low US unemployment rate could lead to a breakout of inflation, Powell noted that the overall pace of price increases remains "muted" and wage gains remain modest, signs the Fed could reduce rates without risk of an overheating economy. The central bank held rates unchanged then, but the minutes showed that some officials felt looser credit could soon be needed to address economic weakness.

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