Powell Testifies to Congress: July Rate Cut Odds Jump


Jerome Powell told Congress "Risk that weak inflation will be even more persistent than we currently anticipate."

Powell Testifies to Congress

Odds of a 50 basis point cut jumped up to 27.6% following Fed Chair Jerome Powell's Semiannual Monetary Policy Report to the Congress.

Key Snips from Powell's Speech

  • The economy performed reasonably well over the first half of 2019, and the current expansion is now in its 11th year. However, inflation has been running below the Federal Open Market Committee's (FOMC) symmetric 2 percent objective, and crosscurrents, such as trade tensions and concerns about global growth, have been weighing on economic activity and the outlook.
  • While growth in consumer spending was weak in the first quarter, incoming data show that it has bounced back and is now running at a solid pace. However, growth in business investment seems to have slowed notably**,** and overall growth in the second quarter appears to have moderated. The slowdown in business fixed investment may reflect concerns about trade tensions and slower growth in the global economy. In addition, housing investment and manufacturing output declined in the first quarter and appear to have decreased again in the second quarter.
  • After running close to our 2 percent objective over much of last year, overall consumer price inflation, measured by the 12-month change in the price index for personal consumption expenditures (PCE), declined earlier this year and stood at 1.5 percent in May. The 12-month change in core PCE inflation, which excludes food and energy prices and tends to be a better indicator of future inflation, has also come down this year and was 1.6 percent in May.
  • Our baseline outlook is for economic growth to remain solid, labor markets to stay strong, and inflation to move back up over time to the Committee's 2 percent objective. However, uncertainties about the outlook have increased in recent months. In particular, economic momentum appears to have slowed in some major foreign economies, and that weakness could affect the U.S. economy. Moreover, a number of government policy issues have yet to be resolved, including trade developments, the federal debt ceiling, and Brexit. And there is a risk that weak inflation will be even more persistent than we currently anticipate. We are carefully monitoring these developments, and we will continue to assess their implications for the U.S economic outlook and inflation.
  • At the time of our May meeting, we were mindful of the ongoing crosscurrents from global growth and trade, but there was tentative evidence that these crosscurrents were moderating. The latest data from China and Europe were encouraging, and there were reports of progress in trade negotiations with China. Our continued patient stance seemed appropriate, and the Committee saw no strong case for adjusting our policy rate.
  • Since our May meeting, however, these crosscurrents have reemerged, creating greater uncertainty. Apparent progress on trade turned to greater uncertainty, and our contacts in business and agriculture report heightened concerns over trade developments. Growth indicators from around the world have disappointed on net, raising concerns that weakness in the global economy will continue to affect the U.S. economy**.** These concerns may have contributed to the drop in business confidence in some recent surveys and may have started to show through to incoming data.

Rate Cut Odds

Rate cut odds from CME Fedwatch.

CNBC Discussion

Snips from CNBC Video

  • Julien Emanuel - BTIG: The market is looking for three cuts by the end of the year and four by the middle of next year. That's too far in our opinion. This is not about an economy that's going into recession. This is about taking insurance."
  • Phil Orlando - Federated: Julien hit the nail on the proverbial head. The core PCE number a week ago was better than expected. Result out of G20 meeting better than expected. The nonfarm payroll numbers we saw on Friday, better than expected. If I'm Jay Powell I am going to try to let the market down easy. ... I may not cut at all. Maybe we get a small insurance cut but the Fed might push that out to September and the market may be disappointed.

Market Disappointed

What a hoot.

My expectation, is yes, the market will be disappointed, no matter what the heck the Fed does. And it sure will not be to push cuts out to September.

Anything, Everything, Nothing

Stocks and junk bonds are priced well beyond perfection.

Anything, everything, or nothing but a sudden change in sentiment towards risk is all it takes for the market to go down hard.

These strategists will all blame the Fed for doing the wrong thing. Yes, the Fed did, years ago, by blowing these massive bubbles. None of these strategists will point that out.

Those bubbles will pop no matter what the Fed does or doesn't do. A recession is now baked in the cake and one more or one less rate cut will not have a thing to do with what happens.

Mike "Mish" Shedlock

Comments (19)
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The fed thinks there is not enough inflation. This confirms the fact that they are not on the side of the American people. Audit the Fed!


How can they concoct a less than 2% number for inflation ?

Where is all the new money they are printing to go ?. Equities, Real Estate, and Bonds or higher still food, energy, housing, healthcare prices.


First, it's insulting and offensive that Inflation - which reduces our standard of living - is the FD's stated goal, and everyone is just fine with that. Secondly, it's offensive that they don't count food and energy...the things people often feel the most, really. Inflation is theft and taxation rolled into one.


Opinion: Trump and the stock market are spooking Powell into making this rookie mistake By Rex Nutting Published: July 10, 2019 3:31 p.m. ET

By all accounts, the U.S. economy is growing robustly, with very low unemployment and very low inflation. The Dow Jones Industrial Average DJIA, +0.29% and S&P 500 index SPX, +0.45% are near record levels and interest rates are extremely low. It’s what they used to call a Goldilocks economy, with nothing too hot or too cold and everything just right.

So, of course, the Federal Reserve is going to cut short-term interest rates in three weeks as insurance against the possibility — however remote — that the economy might soon collapse because of slowing global growth, in part attributable to Donald Trump’s trade war.

It’s a rookie mistake by Fed Chair Jerome Powell, who’s been bullied by President Trump and financial markets into pumping more liquidity into an economy that already has plenty. And don’t think for a second that Powell’s tormentors will be satisfied with just one quarter-point cut.



wonder how the fed would respond if the economy were to 'actually' slow down?


@Sechel: "...wonder how the fed would respond [in an actual] slow down?"

If Powell is to be believed, they will have their foot all the way into the gas. There will be ZIRP, QE, Twist, and any other new ideas they have which have not yet been proven to work. Powell said in his testimony yesterday that he did not see the size of the Fed balance sheet as an obstacle to more QE. I take that to mean that they are going follow the same path as the BOJ.

I cannot help but think that our central bankers should all read up on a phenomenon called "Pilot-induced oscillation."


I agree that at this point a cut or not in July is meaningless. The Fed has talked it up already so the markets have priced it in. It may affect my Forex positions short term but the moves have already been made (and traded) based on the expectation if a cut. Just look at the dollar pair moves since Powell spoke. I went long USD/JPY after the selloff and closed out Thursday evening for a profit. I fully expect another auS stock market drop this fall with one more push higher but then I am always ready to adjust if people go even more crazy.