Stocks Jump To Record Highs, Fed Chief Still Has "Uncertainties"

Stocks Jump To Record Highs, Fed Chief Still Has

Earlier today the Fed's chairman, Jerome Powell, signalled he would cut interest rates again for the first time since the Global Financial Crisis while, in the same breath, insisting the economy was basically OK. Businesses, in turn, would raise prices to offset the cost of higher wages.

With investors in contracts linked to the Fed's targeted overnight lending rate putting the probability of a rate reduction at close to 100 percent, "it would be unprecedented for the Fed to not cut", Lavorgna wrote.

In an appearance before his congressional overseers on Wednesday, Powell confirmed that the USA economy is still under threat from disappointing factory activity, tame inflation and a simmering trade war.

He argued that crosscurrents from global growth and trade continue to weigh on USA economic activity and outlook, bolstering the case for a rate cut at the end of this month when the Fed's rate-setting Federal Open Market Committee convenes another policy meeting. Economists polled by Reuters expect consumer price index to remain unchanged in June after edging 0.1% higher in May.

Several policymakers appeared to support cutting rates soon essentially as an insurance policy, because it "could help cushion the effects of possible future adverse shocks to the economy".

"The relationship between unemployment and inflation became weak" about twenty years ago, Powell told the Senate Banking Committee Thursday.

The stock market set new records on Thursday, bolstered by Powell's signals on rate cuts, with the S&P 500 index hitting an all-time high and the Dow Jones Industrial Average closing above 27,000 for the first time.

The dollar was little changed against a basket of currencies after the data, while U.S. Treasury prices fell.

But the issue of Powell being forced out may be a moot point.

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"The dollar bounced back as the strong U.S. CPI got the market to question the Fed's view on prices and whether inflation was really as weak as projected", said Takuya Kanda, general manager at Gaitame.Com Research Institute.

The kiwi traded at 95.54 Australian cents from 95.42 cents this morning.

Following the hearing on Wednesday, the Fed is to release the minutes from its last policy meeting, which should show the extent to which the thinking at the central bank shifted in the days following Trump's Mexico tariff threat, and how the discussion was shaped by other concerns including weak inflation.

Shares in Europe and on Wall Street had retreated from last week's optimism over a Fed rate cut after a strong June jobs report on Friday which had reduced expectations of a sharp rate cut this month.

Powell has worked hard to build his relationships with lawmakers. "I think this would be on the merits".

Risk from severe weather events is not usually linked to banks but increasingly must be included in their planning, the USA central bank chief said Wednesday.

Policymakers also appear to be far more anxious about a lack of confidence that is seeping into troubling spending and pricing decisions. Manufacturers, they said, are putting big spending and hiring plans on hold and reevaluating where and how they build their goods because of the trade war. Traders should appreciate the idiosyncratic way interest rate markets are now discounting Fed rate cuts: the rate cuts are extremely frontloaded.

Under questioning from committee Chair Maxine Waters, Powell said he would rebuff any demand from Trump that he resign.

"Of course I would not do that", Powell responded, and went on to say, "The law clearly gives me a four year term and I fully intend to serve it". A cut could lift home and auto sales by lowering the borrowing costs for major purchases.

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