WASHINGTON -- Federal Reserve Chair Jerome Powell had two messages for Congress Wednesday: Central bank independence is critical and an interest-rate cut is likely at the end of July.
President Donald Trump has repeatedly bashed the Fed, blaming Powell and his team for harming the economy by keeping interest rates too high and threatening to try to remove Powell as chair if the situation doesn't change. Powell hinted strongly Wednesday that a cut is likely to happen this month because Trump's trade war and slowing growth abroad are starting to bite.
"Since [June] ... 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. Inflation pressures remain muted," Powell said Wednesday during his testimony to the House Financial Services Committee.
U.S. stocks notched hit record highs with the widely watched S&P 500 index crossing 3,000 for the first time ever. Many, including economist Ed Yardeni, president of Yardeni Research, say this is a direct result of "Powell's Pirouette" from the start of the year when he wanted to be "patient" on any changes to rate cuts to June when he changed to signal that a rate cut was now likely even though the economy remains solid -- or even strong -- by many measures.
Wall Street is pricing in a near 100% probability of a reduction in interest rates at the Fed's July 31 meeting.
The U.S. economy is doing "reasonably well," Powell said, but he noted that business investment has "slowed notably," likely because of the uncertainty around trade and global growth. He also stressed that the economic gains have not been shared evenly by everyone. Hispanics, African Americans and people in rural communities are continuing to have a harder time finding jobs that pay well.
"Jay Powell fully endorsed the July rate cut and did absolutely nothing to pull the markets back from that expectation," wrote Peter Boockvar, chief investment officer at the Bleakley Advisory Group, in a note to clients.
Trump is making the strong economy a centerpiece of his re-election campaign and he wants the Fed to help boost growth ahead of the 2020 election. In his latest effort to bend the Fed to his will, Trump said last week that he plans to nominate conservative scholar Judy Shelton and economist Christopher Waller to fill the final two seats on the Fed board. Shelton and Waller both support lowering rates.
Powell has stressed that the Fed will do what is best for the economy and does not take political considerations into account.
"Congress has given us an important degree of independence so that we can effectively pursue our statutory goals based on objective analysis and data," Powell said Wednesday. "We appreciate that our independence brings with it an obligation for transparency so that you and the public can hold us accountable."
The benchmark interest rate is currently 2.35%t, the highest rate in over a decade but a low level by historical standards. The Fed is widely expected to lower the rate to about 2.1% by the end of the month, which should provide extra stimulus to the economy, an unusual move at a time when unemployment is at a half-century low.
Trump handpicked Powell, a lawyer and registered Republican, for the top leadership post at the Fed. But the president has expressed some regret about his choice. Trump has publicly urged the Fed to cut rates and called Powell three times this spring, according to calendars released by the Fed, a highly unusual move that breaks with the precedent set by recent presidents not to try to influence the central bank.
"Our most difficult problem is not our competitors, it is the Federal Reserve!" Trump tweeted Friday, adding that the Fed "doesn't have a clue!"
In June, the president said he believes that he has the right to demote Powell and select a new chair, but the law indicates that Fed leaders can only be removed "for cause," which courts have interpreted as criminal wrongdoing.
Powell has said he fully intends to serve out his term through 2022. Trump's top economic adviser said Tuesday that Powell's job is safe for now.
"There is no effort to remove him. I will say that unequivocally at the present time. Yes, he's safe," Larry Kudlow said at a CNBC Capital Exchange event. "To be very clear, there are no plans presently to change Mr. Powell's job or any of that sort of thing."