Federal Reserve Chair Jerome Powell on Wednesday left the door open to an interest rate cut this month, pointing to uncertainty about trade frictions and global growth.
Powell also was defiant in the face of a constant stream of criticism from President Donald Trump, saying the Fed pays no attention to such commentary and that he would not step down should Trump try to fire him.
In remarks welcomed by Wall Street, Powell said many central bankers believed the case for lower rates “had strengthened” last month given the rising “crosscurrents” in the economy.
In his highly-anticipated testimony to Congress, he repeatedly stressed the importance of keeping the US economy growing to ensure its benefits reach Americans left at the margins and said the central bank will deploy all its tools to support continued expansion.
Investors took this as a clear signal the Fed will cut its the benchmark lending rate at the next policy meeting July 30-31.
Early in the trading session, the broad-based S&P 500 stock index on Wednesday hit 3,000 for the first time before paring gains somewhat, while the Nasdaq, the home of major tech companies, finished at a record.
For the moment, a rate cut also should satisfy Trump, who has been putting intense pressure on the Fed to cut the benchmark interest rate and boost the economy, repeatedly criticizing Powell on Twitter and in public comments.
Having raised the key borrowing rate nine times since 2015 as the economy expanded, most recently in December, the Fed last month opened the door to a rate cut amid signs of slowing.
Powell repeated that sentiment in his prepared statement to the House Financial Services Committee, saying the central bank “would act as appropriate to sustain the expansion.”
And he said that in the weeks since the June policy meeting “it appears that uncertainties around trade tensions and concerns about the strength of the global economy continue to weigh on the US economic outlook.”
At the same time, price measures watched closely by the Fed continue to run well below its two percent target, while wage gains so far are barely enough to cover inflation, he said, rejecting the claim the United States is experiencing a “hot” job market.
To call something hot, you need to see some heat,” he said, adding that the economy can tolerate a lower jobless rate than the Fed previously thought.
And because of the shortage of workers, companies are bringing marginalized people back into the workforce, he said, which “just says how important it is for us to continue to sustain this expansion.”
“That’s why we’re so committed to using our tools to sustain the expansion,” he said in response to a question from a legislator.
Under questioning from Democratic committee Chair Maxine Waters, Powell said he would rebuff any demand from Trump that he resign.
“Of course I would not do that,” Powell said. “The law clearly gives me a four-year term and I fully intend to serve it.”