Fed chairman hints at first interest rate cut in over a decade

XAUUSD daily chart July 9

Powell's remarks triggered a stock market rally, with the Dow Jones industrial average up almost 100 points in late-morning trading.

"On balance, investors live by the credo: 'Don't fight the Fed, ' and if rates are being cut - whatever the reason - they have often stood by stocks, so I'm not surprised we're making new highs", said Rick Meckler, partner, Cherry Lane Investments, a family investment office in New Vernon, New Jersey.

"A rate cut in July is now all but certain", said James McCann, senior global economist at Aberdeen Standard Investments.

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

Trump, who is counting on a strong economy for his re-election campaign, has called the Fed his biggest threat.

Although many anticipate rate cuts, certainty wavered last week after the Labor Department reported that the economy added 224,000 jobs to the economy in June, eclipsing forecasts of 165,000. Rates remained close to zero for years.

In his prepared remarks, Powell made no mention of the president's criticism. "But the Fed tends to operate on trends, not data points".

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

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Powell said any regulatory review of the recently announced project should be "patient and careful", while acknowledging digital currencies do not neatly fit within existing rules.

All eyes are on Jerome Powell as the Federal Reserve chair begins two days of testimony before Congress. On Thursday, he will address the Senate Banking Committee. Many forecasters predict that growth has slowed to an annual rate of around 2% in the just completed April-June quarter.

Powell also says the Fed is coordinating with other regulators, such as the Treasury Department, and other central banks overseas. Policymakers have dimmed their outlook for the economy since last increasing interest rates in December, citing cooler global growth, below-target inflation levels and ongoing trade tensions.

The Fed last cut rates in 2008 at the height of the financial crisis. President Donald Trump's trade wars have magnified uncertainties.

This was despite last week's strong USA jobs figures and an easing of trade tensions with China.

However, not all members are completely convinced that rate cuts are necessary at this time as several members voiced that they did not see a strong case for rate cuts when the Fed met last this past June.

Powell, chosen by Trump to run the Fed but now out of his good graces, has worked hard to build relations among lawmakers, and even on a Democratic-controlled committee won plaudits and encouragement to stay on the job. Trump's attacks have raised alarms that he is undermining the Fed's long-recognized independence from political pressure.

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

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