Jerome Powell

'Fed should have resisted rate cut'

Today Programme

BBC Radio 4

Jerome Powell
AFP/GETTY

The US central bank cut interest rates on Wednesday, lowering the target for its benchmark rate by a quarter point, to a range of 1.5% to 1.75%. The move was the third cut in four months.

Federal Reserve Chair Jerome Powell (pictured) implied the bank would hold off on further cuts.

Diane Swonk, chief economist at Grant Thornton, told BBC Radio 4's Today Programme that she wanted the Fed to resist a rate cut.

An adviser to the Fed, she said: “When you’re at these lower levels of rates you have to be much more strategic in holding your power dry for when you need it most. Although financial markets wanted a rate cut its not clear from the economic data nor from the at least temporary detente [in] the US trade war between China and the US that we need the rate cut at the moment, given we’ve got so little to go before we get back to zero my preference would that they hold off",

Is the Fed independent, given that the US President Donald Trump has been calling on the central bank to cut rates?

"The Federal Reserve pretty much tones out what the president says at this point in time…[They are] wearing noise-cancelling head phones when it comes to the presidential tweets. They can’t help but disappoint the president…. What I do worry about, is even though I know the Fed is not responding only to the president, many people in the market are now reading this as a capitulation to the president".

There is a risk that "perception becomes reality” which is one of the reasons she thinks that the Fed should have held rates.

Fed under Trump pressure

Today Programme

BBC Radio 4

Jerome powell and donald trump
Getty Images

Fiona Cincotta, market analyst at City Index, also spoke to BBC Radio 4's Today Programme about the US Federal Reserve and the pressure the central bank is facing from President Donald Trump to cut rates deeper and faster. The latest decision is expected later today.

"He's completely overstepped the mark as far as independence is concerned," she said.

The market likes to think that Fed head Jerome Powell is not bowing to pressure but looking for clues as to when the US central bank will cut next, she said.

'Broad expectation' Fed will cut

BBC Radio 5 Live

Wake Up To Money

Fed building
Reuters

Fiona Cincotta, market analyst at City Index, says there is "broad expectation" in the market that the US Federal Reserve will cut interest rates despite the mixed economic data.

The market will also be looking for clues for further rate cuts this year.

"There seems to be a mismatch between market expectations and what the Fed is actually saying," she told Radio 5 Live's Wake Up To Money.

The market is putting a 40% probability on two more rate cuts this year so, she says, investors will be "listening closely to hear whether the Fed are looking" at such moves.

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Markets on Jerome Powell watch

Today Programme

BBC Radio 4

Sign to Jackson Hole, Wyoming
Getty

The world's top central bankers are on their annual trip to Wyoming for the Jackson Hole summit.

Investors will be clinging to Jerome Powell's every word, when he speaks later today, for clues as to his next policy move.

Yael Selfin, chief economist at KPMG, says he has "very little room" to act.

Speaking told the Today programme, that Mr Powell should be wary of "triggering bubbles and other distortions" in markets.

Focus turns to Fed chairman's speech

US stock market traders
EPA

How much will the US Federal Reserve cut its benchmark interest rate - if it cuts it again?

After the Fed published the minutes from its July meeting, all eyes turn to chairman Jerome Powell who will give a speech on Friday at the central bankers' gathering in Jackson Hole, Wyoming.

Alan Ruskin, macro strategist at Deutsche Bank, says: "The most sensitive comments will revolve around whether Powell is willing to reaffirm a view that the easing cycle is a 'mid-cycle adjustment' or align more closely to market thinking.

"If he sticks to the old language as is most likely, it would affirm that he is still confident that the strength of consumption, in combination with modest Fed easing, will be sufficient to keep the recovery broadly on track."