Fed pushes back on aggressive US rate cut views

Reuters

Reuters

"Libra's a new thing; we are looking at it very carefully", Powell said in response to an audience question after a talk at the Council on Foreign Relations in NY.

The Dow Jones Industrial Average fell 114.25 points, or 0.43%, to 26,613.29, the S&P 500 lost 17.36 points, or 0.59%, to 2,927.99 and the Nasdaq Composite dropped 80.27 points, or 1%, to 7,925.42.

St. Louis Federal Reserve Bank President James Bullard on Tuesday said he does not think the USA economic situation is dire enough to warrant cutting rates by a half-percentage point at its next meeting in July, even though he pushed to lower rates last week.

Meanwhile, expectations for the upcoming G-20 summit also were lowered after a White House official told Reuters that the US will not accept any new tariff conditions and that the goal is to simply reopen talks.

"Just sitting here today, I think 50 basis points would be overdone", Bullard said in an interview with Bloomberg Television.

The Fed, which paused its rate-hike campaign this year and suggested last week that it could cut borrowing costs as early as next month amid concerns about USA trade disputes and other economic risks, is facing increasing anger from Trump.

"I'm not happy with his actions", said Trump referring to Powell.

In early May, Trump more than doubled the tariffs on Chinese goods after U.S.

All three major U.S. stock indexes were in the red, weighed most heavily by technology stocks, after Powell said the Fed was grappling with whether trade uncertainties and other issues support interest rate cuts. "But we won't make mistakes of integrity or character". The president has threatened to essentially hit all Chinse imports with tariffs if China does not meet the administration's demands for greater protections for USA technology.

"On balance, vulnerabilities to the US financial system are moderate".

Investors are also hoping for a meeting between President Donald Trump and China's Xi Jinping that is expected to take place later this week.

Powell said doing so would risk adding even more uncertainty to the outlook and that the FOMC "will closely monitor the implications of incoming information for the economic outlook and will act as appropriate to sustain the expansion".

"But we are also mindful that monetary policy should not overreact to any individual data point or short-term swing in sentiment", he said.

"It is too early to prejudge outcome of broader Fed policy review". Now private economists believe from two to four rate cuts are possible this year, although some analysts think the Fed could keep policy unchanged if trade tensions are resolved without harming the economy.

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