Published: Fri, July 12, 2019
Money | By Ethel Goodwin

Australian dollar lifts as Fed's Powell spooks the doves

Australian dollar lifts as Fed's Powell spooks the doves

The market has been trending mostly higher this week as investors grew more confident that the Federal Reserve may cut interest rates for the first time in a decade as soon as the end of this month.

The U.S. stock market rallied through much of June after the Fed first signaled that it might cut rates if necessary to shore up the U.S. economy.

Brushing off criticism from President Trump, Powell hinted there may be scope for an imminent cut to USA interest rates when he addressed the House of Representatives Financial Services Committee. The remarks came as Powell gave testimony before the House Financial Services Committee. "In particular, economic momentum appears to have slowed in some major foreign economies, and that weakness could affect the USA economy".

The S&P 500 is up a modest 0.1%.

Trump, who is relying on a strong economy to help propel him to a second term in office next year, has called the Fed his biggest threat. The Fed's benchmark rate now stands in a range of 2.25% to 2.5% after the central bank boosted rates four times past year, moves that brought increasing attacks from President Donald Trump.

Some Fed officials, however, said that while they expected fewer rate hikes than they had in the past, "there was not yet a strong case for a rate cut from current levels".

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In testimony to a congressional committee, Powell pointed to "broad" global weakness that was clouding the US economic outlook amid uncertainty about the fallout from the Trump administration's trade conflict with China and other nations. The minutes show FOMC member concern over soft economic data such as the weak jobs report from April, weakening indicators for business confidence and spending, decreased manufacturing activity and the ongoing trade tensions - mainly between China and the US.

Cheaper gas prices were offset by higher rents and auto costs, but the key core inflation rate was an annualized 2.1 per cent, close to the Fed target.

Futures tracking all of Wall Street's major indices had traded lower before the bell, only to shoot higher at 8:30 am ET after the Federal Reserve published Chairman Jerome Powell's prepared testimony that he will deliver later today on Capitol Hill.

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. He also said low inflation may prove even more persistent than now expected. Trump wrote on Twitter earlier this month, the latest in a series of unprecedented attacks on the independence of the Fed by a sitting president. The monthly jobs report out last week showed that United States hiring rebounded last month.

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