Powell to ‘Act as Appropriate’ as US-China Trade Tensions Rise

On the day the U.S. released better than expected retail sales data, and just days after the release of stronger than expected consumer inflation data, President Trump made comments and China made a move that supported Powell’s case for “uncertainties” driving interest rates lower.
James Hyerczyk

A quiet day in the markets on Tuesday turned into a busy day late in the session after comments from U.S. President Donald Trump rattled investors. Fed Chair Jerome Powell, in the meantime, offered nothing new for investors about the chances of a Fed rate cut at the end of July, reiterating his remarks from a week ago to a crowd in Paris.

Powell Reiterates Pledge to Act Appropriately to Support Economy

In a speech on Tuesday, Fed Chair Powell didn’t sway from his mandate to keep the economic expansion moving along. He reiterated his pledge to “act as appropriate” and didn’t deviate from expectations that an interest rate cut on July 31 is coming.

Powell also said that other policymakers have become more accommodative toward a rate cut. He reiterated that many Fed officials said at their June 18-19 policy meeting that concerns including a U.S. trade war and inflation short of the Fed’s 2% annual target all made a stronger case for stimulus, Powell 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,” he said in remarks prepared for delivery at a French government conference in Paris.

Powell also said the economy continues to turn in “solid” growth that is supporting a “strong labor market”, but a basket of “uncertainties” cloud the Fed’s rosy outlook.

US-China Trade Deal – Long Way Off

On the day the U.S. released better than expected retail sales data, and just days after the release of stronger than expected consumer inflation data, President Trump made comments and China made a move that supported Powell’s case for “uncertainties” driving interest rates lower.

Trump said Tuesday that there’s still a long way to go to reach a deal with China, threatening to slap tariffs on another $325 billion of Chinese goods.

Trump, speaking at a Cabinet meeting at the White House, said China was supposed to be buying U.S. farm products and his administration was watching to see if Beijing would do so.

Meanwhile, China has suddenly added a new member to its negotiating team, which is another sign that a comprehensive deal could be a long way off.

The new developments dampened analysts and investors’ hope for a resolution, helping to drive U.S. equity market lower on Tuesday. Furthermore, they indicated that the U.S. and China may be moving further apart.

“No face-to-face meetings have even been scheduled,” Donald Straszheim, head of Evercore ISI”s China research team, said in a note. “Trade progress has been in reverse. The two sides are further apart now than in November-December 2018.”

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