Risks improve the US economic outlook, the US Federal Reserve is slow to cut interest rates

Release time：Jun 10, 2019 From：admin

The top Fed policymakers are not ready to cut interest rates, but the worsening economic outlook is pushing them in this direction.

Federal Reserve Chairman Powell and Vice Chairman Richard Clarida both said they are closely watching the signs of weakening US economic prospects and comforting nervous investors. Their speech made the Fed closer to the first rate cut since 2008.

"The market expects the Fed to have one or two interest rate cuts this year. Powell may have slightly opened the door," said Chris Rupkey, chief financial economist at MUFG Union Bank.

Other Fed observers said that Powell and Clarida did not imply that they would take action at the June 18-19 policy meeting. Clarida said the Fed couldn't be "bound" by the ups and downs of the market.

Despite this, they have noticed an increase in economic risks, and they are still reassured by the big bets that the Fed will cut interest rates this year. The S&P 500 index rose 2.1% on Tuesday, the biggest gain since January, and the 10-year US Treasury yield rose from a 20-month low set on Monday.

“Bauwell is actually telling the market that the Fed is wary of what is happening,” said Roberto Perli, a former Fed economist at Cornerstone Macro LLC. "But at the same time, it is too early to judge the impact of the US outlook, because as he said, no one knows how the situation will develop. So he seems to be fighting for time."

Chicago Fed President Charles Evans, who has voting rights this year, said on Wednesday that he still believes that the economic fundamentals are "stable" but worried that inflation will continue to weaken.

“Low inflation has made me nervous,” Evans said in an interview. "On this point alone may constitute a reason for a little more easing."

Dallas Fed President Robert Kaplan said in an interview on Wednesday that he would see more evidence that the economic slowdown would support a rate cut. Kaplan has no policy voting rights this year.

“It’s still too early to make a judgment,” Kaplan said. "We will remain vigilant and pay attention to whether the economy is affected."

Powell said on Tuesday that "we are closely monitoring the impact of the development of these conditions on the US economic outlook, and as always, we will take appropriate measures to maintain economic growth."

Powell mentioned that if it is necessary to cut interest rates due to economic risks, the Fed will be prepared to do so.

Later, Clarida said that the Fed will carefully observe economic indicators to determine whether it is necessary to take any action.

Fed governor Lael Brainard reinforces this message in an interview on Wednesday, saying that US consumers have been strong, but uncertainty poses downside risks.

"The Fed has the same patience for interest rate cuts and interest rate hikes," said Mark Vitner, senior economist at Wells Fargo. “Although the market has responded instinctively to economic risks, the Fed needs some time to observe the development of the situation.”