U.S. Federal Reserve Chairman Powell warned Wednesday that uncertainties in U.S. economic and trade policies are causing global economic slowdown, weak U.S. manufacturing and capital expenditure and other issues, reiterating that the Federal Reserve will take appropriate measures to maintain U.S. economic expansion. But there are disagreements within the top Fed on the outlook for the U.S. economy, and concerns about whether interest rate cuts can deal with downside risks arising from the trade war.
Interest Rate Reduction Is Difficult to Deal with the Risk of Economic and Trade Friction
Powell warned at the annual meeting of the Global Central Bank held in Jackson Hall, Wyoming that uncertainties in U.S. trade policy are causing global economic slowdown and weakness in U.S. manufacturing.
Only one day after the Federal Reserve announced a 25 basis point interest rate cut on July 31, the White House escalated its tariff threat to China, which was subsequently listed by the US Treasury as a currency manipulator.
Facing the escalating Sino-US economic and trade frictions, Powell said that there is no recent precedent for how to respond to the current situation. Although monetary policy is a powerful tool to boost consumer spending, business investment and public confidence, it is unable to provide definite codes of conduct for international trade.
Powell said incorporating trade policy uncertainty into the Federal Reserves decision-making framework is a new challenge. The responsibility for making trade policy is not with the Federal Reserve, but with the U.S. Congress and the government.
Common Focus of Eagle and Pigeon
As to how monetary policy should go, there are always hawks and pigeons at the top of the Federal Reserve who have a tighter stance. But at present, both sides believe that economic and trade friction is a variable that must be paid attention to.
James Brad, the representative of the pigeon and President of the Federal Reserve Bank of St. Louis, said that the damage caused by the trade war outside the United States was eating up the American stock market and market, the global manufacturing industry was shrinking and might deteriorate further, downside risks did exist, and the Federal Reserve should insure against downside risks.
Robert Kaplan, president of the relatively neutral Dallas Federal Reserve Bank, said that the focus and fulcrum of current U.S. economic policy may not be on monetary policy, but more on trade policy, immigration policy and other political areas.
Interest rate cuts are expected to be consolidated
Although Powell did not make it clear in his speech whether he would continue to cut interest rates at the monetary policy meeting in September, his comments on the White Houses economic and trade policy and his statement on maintaining the expansion of the U.S. economy generally consolidated the expectation of interest rate cuts in September in the U.S. financial market.
Data from the Chicago Mercantile Exchange show that market investors expect the Fed to cut interest rates by 25 basis points in September, with a probability of nearly 90% and a probability of 50 basis points.
According to Gennady Goldberg, an interest rate strategist at Dominican Securities, Powells remarks are highly consistent with those of the Federal Reserves regular meeting in July, and the Federal Reserve has not denied market expectations of a rate cut in September.
Ian Shepardson, chief economist at Pantheon Macroeconomic Research, believes that the recent deterioration of the economic situation indicates that the Fed will continue to cut interest rates, but economic data do not support a substantial rate cut.