Powell warns of economic 'uncertainties,' paving way for July rate cut

Federal Reserve Chairman Jerome Powell reiterated on Tuesday that policymakers at the central bank will “act as appropriate” in order to sustain the record-long economic expansion in the U.S., once again setting the table for an interest rate cut at the end of the month.

In prepared remarks delivered at a conference in Paris, Powell laid out the case for easier monetary policy, most notably uncertainties surrounding trade developments, the U.S. debt ceiling and Brexit, as well as concerns about softening global growth.

Inflation also remains muted, undershooting the Fed's 2 percent target this year. In May, the core PCE price index rose slightly to 1.6 percent.

"Many FOMC participants judged at the time of our most recent meeting in June that the combination of these factors strengthens the case for a somewhat more accommodative stance in policy," he said. "We are carefully monitoring these developments and assessing their implications for the U.S economic outlook and inflation, and will act as appropriate to sustain the expansion."

Powell's speech comes on the heels of his two-day testimony last week on Capitol Hill, during which he warned of "greater uncertainty" to the economic outlook.

"Based on incoming data and other developments, it appears that uncertainties around trade tensions and concerns about the strength of the global economy continue to weigh on the U.S. economic outlook. Inflation pressures remain muted," he said in prepared remarks for the House Financial Services Committee.

Wall Street continues to price in a 100 percent chance of a reduction in the benchmark federal funds rate -- which is currently between 2.25 percent and 2.50 percent -- at the Fed's upcoming July 31st meeting, with most traders anticipating a 25 basis point cut.


Powell also noted that the Fed needs to pay greater attention to the rest of the world, highlighting the growing importance of the interconnectedness of other countries' economic, financial and political environments.

"We have seen how monetary policy in one country can influence economic and financial conditions in others through financial markets, trade, and confidence channels," he said. "Pursuing our domestic mandates in this new world requires that we understand the anticipated effects of these interconnections and incorporate them into our policy decisionmaking."

In mid-June, Mario Draghi, the president of European Central Bank, said the body was prepared to cut interest rates and provide extra stimulus if the economy needed it. Draghi said during a speech in Portugal that “further cuts in policy rates ... remain part of our tools.”