The benchmark S&P 500 breached the 3,000 points mark for the first time on Wednesday, as hopes of an interest-rate cut later this month were lifted by Federal Reserve chief Jerome Powell’s comment that the central bank would “act as appropriate” to sustain record U.S. growth.
In prepared remarks ahead of his two-day testimony to Congress, Powell said overall growth has also “moderated,” while “there is a risk that weak inflation will be even more persistent than we currently anticipate.”
“Powell’s really making the case that an insurance rate cut is important so July is looking much more likely despite the fact we had a pretty good jobs report,” said Chris Zaccarelli, chief investment officer, Independent Advisor Alliance, Charlotte, North Carolina.
“He’s coming across as very dovish. A lot of his quotes are much more on the easing side.”
Wall Street’s three main indexes had retreated from last week’s record closing highs after a strong June jobs report on Friday tempered expectations of a sharp rate cut this month.
Powell said that since Fed officials met last month, “uncertainties around trade tensions and concerns about the strength of the global economy continue to weigh on the U.S. economic outlook.” Meanwhile, inflation has fallen farther from the Fed’s target.
Many investors have put the odds of a rate cut this month at 100%. The Fed’s benchmark rate currently stands in a range of 2.25% to 2.5% after the central bank boosted rates four times last year, moves that brought increasing attacks from President Donald Trump.
Trump, who is counting on a strong economy as he heads into a re-election campaign, has called the Fed his biggest threat. He contends that the central bank made a huge mistake by tightening credit too much last year and should be cutting rates now, arguing that last year’s rate hikes have hurt economic growth and depressed the stock market.
Powell made no mention of the president’s criticism in his prepared testimony, but he did thank Congress for the “independence” it has given the central bank to operate.
Powell’s statement kicked off two days of testimony, first before the House Financial Services Committee and then Thursday before the Senate Banking Committee.
At the moment, the economic landscape is a mixed one: The U.S. job market appears resilient but overall economic growth is slowing with many forecasters predicting that growth has slowed to around 2% in the just completed April-June quarter.
In his testimony, Powell said the economy has performed “reasonably well” over the first half of the year. But he noted that “crosscurrents, such as trade tensions and concerns about global growth, have been weighing on economic activity and the outlook.”
He said that growth in business investment “seems to have slowed notably,” possibly because of concerns over slowing global growth and the trade battle between the United States and China.
Powell repeated a pledge the Fed made in its June policy statement that officials would “act as appropriate to sustain the expansion.” However, he added that “many” Fed officials saw that the case for a looser monetary policy “had strengthened.”
The Fed last cut rates in 2008 at the height of the financial crisis.