Many Fed officials saw stronger case for rate cut last month

Many Fed officials saw stronger case for rate cut last month

The recent jump in the stock market follows news from the Federal Reserve Chair Jerome Powell signaled he will cut interest rates later this month. Economists expect the reduction will likely be a quarter-point.

The labor market remains healthy despite the rising risks to the 10-year old economic expansion, the longest in history.

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

Powell also cited uncertainties about trade and the global economy as threats to U.S. economic growth during his Wednesday testimony.

US underlying inflation rose at the highest rate in almost 1-1/2 years in June, possibly easing some of the pressure on the Federal Reserve to take aggressive monetary action.

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".

Giving evidence to Congress, Powell said that many Fed members saw the case for action during its June meeting.

US stocks traded higher, with the S&P 500 briefly crossing the 3,000-point mark for the first time.

Following Mr Powell's comments, the dollar fell against a basket of currencies and the major share indexes opened higher.

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. Slower global growth is also dragging on exports, they noted.

The minutes showed widespread concern that the economy is losing steam.

"Despite the fact that core prices were a little bit stronger than expected, I don't really see this as a sign of any resurgence in inflation", said Gregory Daco, chief USA economist at Oxford Economics.

More news: Amazon Take On SpaceX With 3000+ Internet Satellites

Senator Richard Shelby of Alabama, often a critic of the central bank, also offered Powell his backing in the face of Trump's pressure.

Powell has worked hard to build his relationships with lawmakers.

"To call something hot, you need to see some heat", he said, adding that the economy can tolerate a lower jobless rate than the Fed previously thought.

The once-strong connection between low unemployment rates, higher wages and prices has weakened "to the point where it's a faint heartbeat", he said later in the day in response to questioning by Democratic Representative Alexandria Ocasio-Cortez.

"We've learned the economy can sustain much lower levels of unemployment than we thought without triggering inflation", Powell said on Wednesday.

During Powell's testimony before the Senate Banking Committee on Facebook's planned Libra cryptocurrency, he said: "The size of Facebook's network means it could be, essentially, immediately systemically important".

Policymakers also appear to be far more anxious about a lack of confidence that is seeping into troubling spending and pricing decisions.

"We are considered far and away the hottest economy anywhere in the world", Mr. Trump said at this year's State of the Union.

The Federal Reserve has signaled it will cut interest rates at its July 30-31 meeting, with chair Jay Powell telling Congress on Wednesday that there is a "risk that weak inflation will be even more persistent than we now anticipate".

Under questioning from committee Chair Maxine Waters, Powell said he would rebuff any demand from Trump that he resign. "The law clearly gives me a four-year term and I fully intend to serve it".

Retaliatory tariffs remain a persistent worry for markets.

The implied rate on fed funds futures for August - which indicate where the market is betting the central bank's key rate will be after its July 31 decision - fell to 2.1%.