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

A man walks past an electric screen showing Japan's Nikkei and Shanghai Stock Exchange markets' indices outside a brokerage in Tokyo

Prepared remarks by the head of the US central bank - delivered to a committee of the US Congress on Wednesday morning - may bolster expectations of an interest rate cut later in July. While the latest jobs data fuelled doubts policy makers will reduce borrowing costs this month, President Donald Trump continued to apply pressure on Fed Chair Jerome Powell to do just that, saying the current monetary policy has put the U.S. at a disadvantage versus Europe.

Many traders still expect the Fed will cut its benchmark rate by a quarter percentage point at the end of the month, but fewer are now expecting a half-point reduction. The Fed's benchmark rate now stands in a range of 2.25 per cent to 2.5 per cent after the central bank boosted rates four times previous year, moves that brought increasing attacks from President Donald Trump.

Powell will present his remarks and take questions from members of the US House of Representatives Financial Services Committee beginning at 10 a.m. EDT (1400 GMT), and will testify again on Thursday before the Senate Banking Committee.

Powell additionally observed that "economic momentum appears to have slowed in some major foreign economies, and that weakness could affect the US economy" and that "a number of government policy issues have yet to be resolved, including trade developments, the federal debt ceiling and Brexit", The Wall Street Journal reports.

"Many judged additional monetary policy accommodation would be warranted in the near term should these recent developments prove to be sustained and continue to weigh on the economic outlook, " according to the minutes of the June 18-19 Federal Open Market Committee released Wednesday in Washington.

Investors expect the Fed will cut its benchmark rate, now in a range between 2.25% and 2.5%, by a quarter percentage point at its 30-31 July meeting.

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U.S. stock index futures gained early on Wednesday, turning positive after Powell's remarks were released, while the United States dollar fell against a basket of other currencies.

But Trump's statements spooked financial markets so decisively, and the threats to the global economy became so palpable, that a rate cut of at least 25 basis points now appears a near certainty, with a 50-basis-point cut also considered possible as extra protection.

A cut could lift home and auto sales by lowering the borrowing costs for major purchases.

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

During Wednesday's hearing, Powell reiterated his previous assertion that the Fed will "act as appropriate" to sustain the current economic expansion.

The greenback is under pressure in the early day, likely from some profit taking ahead of Fed Chair Powell's Testimony later today. The Fed has raised rates nine times since 2015, four increases coming under Powell's leadership. But he cautioned that business investment has slowed, possibly as a response to ongoing trade tensions and a slowdown in the global economy.

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