Fed Minutes Show Many Saw a Stronger Rate-Cut Case

XAUUSD daily chart July 9

The Fed's benchmark rate stands in a range of 2.25 percent to 2.5 percent after the central bank raised rates four times previous year - action that incited public attacks on the Powell Fed from President Donald Trump.

In testimony to a congressional committee, Powell pointed to "broad" global weakness that was clouding the US economic outlook amid uncertainty about the fallout from the Trump administration's trade conflict with China and other nations. It doesn't appear from his prepared remarks that Powell will hint at a forthcoming rate cut. "It needs a careful look, so I strongly believe we all need to be taking our time with this". "Our most hard problem is not our competitors, it is the Federal Reserve!". "So they figure keep trying this until something happens".

The Bloomberg Dollar Spot Index fell 0.1% after an 0.3% decline Wednesday.The euro climbed 0.1% to $1.1261.The British pound rose 0.1% to $1.2509.The Japanese yen added 0.3% to 108.13 per dollar.The offshore yuan was flat at 6.8742.

Powell also said that while US unemployment remains low at 3.7%, wage growth is not indicating an overheated jobs market and inflation "continues to be muted". He will testify again on Thursday before the US Senate Banking Committee.

Overnight, Atlanta Fed bank president Raphael Bostic let nothing out of the bag by saying the central bank was debating the risks and benefits of letting the USA economy run "a little hotter". As the economy recovered the central bank began slowly raising rates.

After Powell's remarks and release of the Fed's minutes, interest rate futures appeared to price in greater odds of an aggressive rate cut this month.

But the ongoing trade wars and signs of trouble in markets outside the United States appear to have convinced more Fed members that there is now a case for cutting rates.

"The Fed has never disappointed a market with such strong expectations of action", Joseph Lavorgna, chief economist for the Americas at Natixis, wrote in a recent analysis.

At one point during the day, traders were pricing in a 100 percent probably of the Fed cutting rates, CNBC reported, citing the CME Group's FedWatch tool.

Following the hearing on Wednesday, the Fed is to release the minutes from its last policy meeting, which should show the extent to which the thinking at the central bank shifted in the days following Trump's Mexico tariff threat, and how the discussion was shaped by other concerns including weak inflation.

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. Rates remained close to zero for years.

"Manufacturing, trade and investment are weak all around the world".

The only question left seems to be: How low will borrowing costs go this month?

Mr Powell pledged to "act as appropriate" to defend an economic expansion threatened by trade disputes and a global slowdown. Some characterized a likely rate cut late this month as an "insurance policy" against an economic downturn.

This was despite last week's strong U.S. jobs figures and an easing of trade tensions with China.

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