Jerome Powell is likely to leave Federal Reserve interest-rate cuts firmly on the table when he appears before Congress this week, even though the latest U.S. jobs report dialed down the urgency to ease borrowing costs.
The Fed chairman, who has been hectored for months by President Donald Trump for not cutting rates, will probably repeat language from the Federal Open Market Committee’s June statement that it will “act as appropriate’’ to sustain the economic expansion -- reinforcing bets the central bank will cut at its July 30-31 meeting.
Powell gives his semiannual monetary policy testimony at 10 a.m. Wednesday before the House Financial Services committee and a day later to the Senate banking panel. Lawmakers including Democratic presidential candidate Elizabeth Warren are expected to question him about a range of issues such as Trump’s attacks, the state of the economy and Facebook Inc.’s new currency plans.
“He’s going to have to send a clear signal this week: go, no go, or still unsure and watching the data,” said Stephen Stanley, chief economist with Amherst Pierpont Securities. “If he continues to be ambiguous, the markets probably will assume that he approves of market pricing, so he might as well take a position.’’
Investors are fully pricing in a 25 basis point move. Here are five things to watch out for in his testimony:
Risk Assessment
Powell’s updated assessment of risks to the U.S. outlook will be especially important, since rising concerns would be the rationale for rate cuts. The Fed’s monetary policy report released Friday highlighted a significant weakening in global trade growth and manufacturing since 2017. Uncertainly has weighed on business investment and tariffs have had a “material but modest” direct impact on global trade flows, according to the study.
“Powell has made it clear that, if necessary, the Fed will take steps to assure the continuation of the expansion,’’ said Ward McCarthy, chief financial economist at Jefferies. “What is not clear is what would trigger the Fed take these steps. I am looking for him to provide some clarity.’’
The addition of 224,000 jobs in June, far more than economists expected, would tend to suggest there’s less urgency to offset a global economic slowing. The Labor Department report Friday showed no wage pressures, with average hourly earnings steady at 3.1%, and an expansion of the labor force signals there may still some slack in the job market.
Seeing Headwinds