Fed's Powell affirms rate cut view; see U.S. economy humming
(Adds comments from Brainard, Kashkari and Williams)
By Howard Schneider and Ann Saphir
ATLANTA/VICTOR, Idaho, July 11 (Reuters) - As Federal
Reserve Chair Jerome Powell kept the focus Thursday on global
risks that could trigger a Fed rate cut in coming weeks, his
colleagues from regional Fed districts painted a rosier picture
of continued U.S. economic growth and a solid business outlook.
The contrasting remarks show the dilemma the Fed faces as it
heads towards an end-of-month monetary policy meeting now
broadly expected to end with a rate reduction.
On one hand - emphasized by Powell in Congressional hearings
Wednesday and Thursday and seconded by the
influential chief of the New York Fed and Fed Governor Lael
Brainard -- global trade and economic risks have put a dent in
investment, inflation is well below the Fed's 2% target, and the
U.S. expansion may need a shot in the arm.
But as they polled businesses in their districts, Atlanta
Federal Reserve Bank President Raphael Bostic and Richmond
Federal Reserve Bank President Thomas Barkin saw an economy
still humming, and no clear need for the Fed to ease monetary
"I am not seeing the storm clouds actually generate a storm
yet," said Bostic, who described himself as skeptical of the
need to cut interest rates right now. "With very few exceptions
businesses are telling me the economy is performing as strong as
it was. They are not seeing weaknesses in consumer engagement.
And they are not materially changing their plans."
"I've been out in the last couple weeks and I'm talking to
business people," Barkin said on Thursday. "They are not yet
leaning back...They are not cutting jobs, They are not cutting
investments that have already been underway. But they are
cautious...They haven't stopped, they've just slowed."
More detail about on-the-ground business sentiment may come
next week when the Fed releases its latest Beige Book compendium
of anecdotal information from the 12 Fed districts.
Powell has pointed to a number of national surveys as
evidence business confidence took a hit recently, particularly
in May after President Donald Trump threatened to impose tariffs
on Mexican imports unless his demands about tougher immigration
enforcement were met.
The tariffs were not levied, but "it was a bit of a
confidence shock, Powell told the Senate Banking Committee.
In Albany, New York Thursday, New York Fed President John
Williams, added his voice in support of a rate cut, citing
uncertainties around trade and global growth and soft inflation.
"The arguments, for adding policy accommodation have
strengthened over time."
Brainard, in a separate appearance in Scranton,
Pennsylvania, piled on. "Taking into account the downside risks
at a time when inflation is on the soft side would argue for
softening the expected path of monetary policy according to
basic principles of risk management," she told a community
Neither Barkin nor Bostic have a vote this year on the Fed's
rate-setting committee. But they will participate in the debate
when the Fed meets in three weeks in a session widely expected
to reduce the Fed's overnight target interest rate by at least a
quarter of a percentage point.
Investors expect that cut with near 100% certainty.
Powell, in appearances on Capitol Hill this week, bolstered
expectations such a cut is coming, and focused on the need to
protect the United States against fallout from a weak global
Neither Barkin nor Bostic ruled out supporting a rate cut,
which, according to minutes of the Fed's June meeting, has drawn
support for a variety of different reasons -- both the global
tensions Powell has focused upon, as well as weak inflation and
a sense that the Fed had unintentionally set policy too tight
with its four interest rate increases last year.
At least a couple regional Fed bank presidents do support a
rate cut, including St. Louis Fed Bank President James Bullard,
and Minneapolis Fed President Neel Kashkari who on Thursday said
he is advocating the "stronger medicine" of a half-percent rate
cut. Both men say a rate cut is needed to boost inflation
But other regional bank presidents have in recent days said
they were struggling to justify lower rates at a time when
unemployment is near a historic low, at 3.7%, and job growth
Bostic said that even recent weak inflation data may not be
as worrisome as it might seem.
With the Fed's current preferred measure of inflation
running at 1.6%, below the 2% target, some policymakers argue
the central bank needs to do more or risk losing public trust
that it takes the target seriously.
"If the public comes to believe that a persistent downside
miss to the 2% goal means the FOMC is not committed to that
goal, then there is a problem," Bostic said.
But he added that his analysis of inflation expectations,
based on surveys of professional forecasters and business
executives, left him unconvinced that expectations are slipping.
In addition, less "noisy" measures of actual inflation, which
strip out the most volatile terms, indicate "that right now we
are very close to our 2% price stability mandate."
(Reporting by Howard Schneider; Additional reporting by Trevor
Hunnicutt; editing by Diane Craft)
First Published: 2019-07-11 21:49:29
Updated 2019-07-11 23:54:51
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