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Markets await rate cut clues from Fed Chief Powell

Video credit: Reuters Studio
Published on August 22, 2019 - Duration: 02:20s

Markets await rate cut clues from Fed Chief Powell

Federal Reserve Chairman Jerome Powell delivers a closely-watched speech this week amid mounting pressure to signal more rate cuts are in the works to avoid a recession.

Conway G.

Gittens reports.

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Markets await rate cut clues from Fed Chief Powell

The Federal Reserve's annual summer retreat for global central bankers in picturesque Wyoming usually flies under the radar....but not this year.

With Fed chairman Jerome Powell taking a daily beating from President Trump... SOUNDBITE (ENGLISH) PRESIDENT DONALD TRUMP, SAYING: "If the Fed did what they were supposed to do they would drop interest rates by 100 basis points." and financial markets betting Powell will follow a July rate cut with more slashes to come well into next year... The pressure is on the Fed chair when he gives his address on Friday.

Reuters Fed reporter Howard Schneider.

SOUNDBITE (ENGLISH) REUTERS FED REPORTER HOWARD SCHNEIDER, SAYING: "Powell's mission on Friday is to give some sense of what the Fed is responding to globally right now.

If not U.S. employment and inflation, which are both very close to their target, if not some sense that U.S. growth is at risk then what is it that would prompt them to cut rates again?

What is it about global financial conditions or global economic conditions or global reads on uncertainty that would make them think that U.S. policy should move a notch down?" Recession fears have increased after the bond market recently flashed a warning signal and the Fed is concerned a slowing global economy will dent U.S. growth.

But data on consumer spending have been solid, suggesting the economy could avoid a free-fall.

That may explain why investors and the Fed are still not on the same page when it comes to how much rates need to drop.

Powell's speech could try to bridge that gap.

SOUNDBITE (ENGLISH) REUTERS FED REPORTER HOWARD SCHNEIDER, SAYING: "Either start moving towards where investors think the Fed is going or to start pulling them back towards where the Fed more likely thinks it's going to go.

Because it is so out of line.

Investors are thinking two, three cuts, maybe four cuts by spring of next year.

That's a big gap, an unusual gap.

So closing that one way or the other is going to also be part of his job on Friday morning." If Powell's speech is seen as being less aggressive on the number of rate eases, that could open up another wave of market volatility and even more criticism from the White House ahead of the Fed's September decision on interest rates.

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