Powell: Trade War, Global Weakness 'Weigh On The US Economic Outlook'

Powell’s message to Congress: Rate cut is likely coming soon

Fed officials at their June policy meeting signaled those concerns might warrant lower rates, and "since then, based on incoming data and other developments, it appears that uncertainties around trade tensions and concerns about the strength of the global economy continue to weigh on the US outlook", Powell said.

Wall Street hit record highs after the head of the USA central bank sent investors a strong signal it will press ahead with an interest-rate cut.

The S&P 500 index broke through the 3,000-point milestone after he warned that the global slowdown and trade war uncertainty "continue to weigh on the U.S. economic outlook". In addition, inflation has dipped further below the Fed's annual target level.

Many investors have put the odds of a rate cut this month at 100%.

President Donald Trump has repeatedly attacked the Fed for raising rates four times a year ago and has called for a full percentage point cut.

Fed staff concluded the rise in world tariffs had a likely "material" impact on the slowdown in global trade previous year, and that "uncertainty surrounding trade policy could be leading firms to delay investment decisions and reduce capital expenditures".

Powell's statement kicked off two days of testimony, first before the House Financial Services Committee and then Thursday before the Senate Banking Committee.

The strong comments from the most powerful USA financial regulator underscored the growing regulatory hurdles facing the proposed cryptocurrency, which has drawn scrutiny from policy-makers globally. She also referred to published reports that Trump had discussed firing Powell. But he noted that "crosscurrents, such as trade tensions and concerns about global growth, have been weighing on economic activity and the outlook".

Powell said the Fed has established a working group to follow the project and is coordinating with other central banks across the globe.

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With more than 20 years' trading experience, Ed Moya is a market analyst with OANDA, producing up-to-the-minute fundamental analysis of geo-political events and monetary policies in the US, Europe, the Middle East and North Africa.

The Fed last cut rates in 2008 at the height of the financial crisis.

When the stock markets crash last winter amid threats of tariffs against China, Trump began to ask his advisers if he could remove Powell from his post at the central bank.

While the central bank has left the door open to an interest rate cut, market participants have fully priced in a reduction at the July 30-31 meeting. Economists expect the reduction will likely be a quarter-point.

That change reflects two developments. President Donald Trump's trade wars have magnified uncertainties. But the economy is likely slowing.

A strong jobs report for June has weakened the case for a big move.

One wild card in the Fed's decision-making has been Trump's highly unusual public pressure on the central bank to cut rates sharply.

Powell's prepared testimony assuaged those fears, though it appears that the Fed will remain cagey on when it intends to cut rates.

The president did not rule out the possibility last month of either demoting or firing the chairman of the Fed.

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