MNI POLICY: Fed Powell: Uncertainties Continue; Weak Infl Risk

By Jean Yung and Kevin Kastner

     WASHINGTON (MNI) - Federal Reserve Chair Jay Powell on Wednesday reinforced

expectations for an interest rate cut this month in testimony to Congress by

highlighting sustained uncertainties over trade policies and global growth as

factors threatening the U.S. economic expansion. 

     "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,"

he told lawmakers in the House Financial Services Committee, citing incoming

data and other developments since the FOMC last met in June.  

     At the same time, inflation is running below target and "inflation

pressures remain muted," he said. There is "a risk that weak inflation will be

even more persistent than we currently anticipate."  

     In June, many Fed officials saw that a case for "somewhat more

accommodative" policy had strengthened, Powell reminded lawmakers, and the Fed

pledged to act as appropriate to sustain the expansion. The FOMC has also said

it is prepared to adjust any of the details for completing balance sheet

normalization if needed. 

     --INCREASED UNCERTAINTIES

     Despite a positive baseline outlook, Powell noted rising risks on the

downside. Economic momentum appears to have slowed in some major foreign

economies, and that weakness could affect the U.S. economy, he said. Government

policy issues including trade developments, the federal debt ceiling and Brexit

also remain unresolved. 

     These concerns may have contributed to a drop in business confidence in

recent surveys and started to show through to incoming data, he said.  

     Growth in business investment seems to have "slowed notably," and overall

growth appears to have moderated in the second quarter. Housing investment and

manufacturing output declined in the first quarter and appear to have fallen

again in the second quarter. 

     Meanwhile, inflation has slowed. The overall personal consumption

expenditures price index declined this year to 1.5% in May while the core PCE

inflation measure fell to 1.6%. It had been running close to 2% over much of

last year.

     --LABOR MARKET HEALTHY

     The Fed reports better news on the other half of its dual mandate. 

     The U.S. labor market remains healthy with the 3.7% unemployment rate close

to a 50-year low and plentiful job openings. Payroll gains averaged 172,000 per

month in the first half of this year. That's a slowdown from 223,000 a month

last year but above the pace needed to absorb new workers. 

     But labor force participation by those in their prime working years remains

lower in the United States than in those of its peers, and disparities in

unemployment and wage gains across demographic groups are troubling, important

longer run challenges for the nation, Powell said. 

--MNI Washington Bureau; +1 202-371-2121; email: jean.yung@marketnews.com

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