MNI POLICY: Fed Report Repeats Vow to 'Act As Appropriate'>

--Semi-annual Report to Congress Flags Rising Uncertainties

--Chair Powell To Testify Before House Committee Wednesday

By Jean Yung and Kevin Kastner

     WASHINGTON (MNI) - The Federal Reserve's semi-annual policy report 

to Congress released Friday repeated its pledge to "act as appropriate 

to sustain the expansion" in light of growing uncertainties to the 

outlook and inflation below target. 

     Business contacts reported heightened concerns over trade 

developments while inflation pressures remained muted, the Fed said. 

Despite a pick-up in inflation in April and May, price growth is below 

the Fed's 2% target. Meanwhile, the labor market is expected to 

strengthen further this year though at a slower pace compared to past 

years, while overall GDP growth showed signs of cooling off in the 

second quarter. 

     Fed Chair Jay Powell will deliver testimony based on this report  

Wednesday and Thursday, answering questions from lawmakers on both days. 

     Here are other key takeaways from the report: 

     - Nearly all Fed officials lowered their projections for interest 

rates over the medium term, relative to the March meeting. About half of 

Fed officials expect to keep the fed funds rate at its current level 

through the end of the year while the other half projected a lower level 

by year-end. Similarly, half of the FOMC saw risks to inflation as 

roughly balanced while the other half saw more downside risks. 

     - Global growth indicators have "disappointed," raising 

concerns about the the strength of the worldwide economy, the Fed said. 

In particular, growth trade and manufacturing has weakened significantly 

around the world since 2017 amid trade tensions. 

     - The labor market has continued to strengthen this year but wage 

growth has been moderate. Average payroll growth has slowed from last 

year's 223,000 pace but remains faster than needed to absorb new 

workers. The unemployment rate has moved down from 3.9% in December and 

is expected to fall slightly more. 

     - Financial conditions remain supportive of growth. Treasury yields 

moved significantly lower in the first half, reflecting investor 

concerns on trade tensions and the global economic outlook as well as 

for the Fed to ease policy. 

     - The Fed repeated that it would be prepared to adjust its 

balance sheet normalization plans as needed. Runoffs are expected to end 

in September with overall assets held steady for a period after that. 

Reserve balances have shrunk by $150 billion since the end of last year 

and are down about $1.3 trillion from its 2014 peak. 

     ** MNI Washington Bureau: 202-371-2121 ** 

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