Federal Reserve chairman Jerome Powell signaled an imminent rate cut during Wednesday congressional testimony, citing President Trump’s ongoing trade war and a lagging global economy to justify the move.
Testifying before the House Financial Services Committee, Powell strongly suggested that the Fed is more likely than not to cut rates when it next meets later this month.
“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,” Powell told lawmakers. “Inflation pressures remain muted.”
Trump has now placed tariffs on $250 billion in Chinese goods, and Beijing has responded commensurately. While the two countries recently agreed to restart negotiations, there is currently no indication that the spat will be resolved in the near future.
“We’ve agreed to begin discussions again with China. While that’s a constructive step, it doesn’t remove the uncertainty,” Powell said. “The uncertainties around global growth and trade continue to weigh on the outlook. In addition, inflation continues to be muted.”
Powell went on to dismiss the suggestion that a strong June jobs report obviated the need for a rate cut, explaining that while the labor market is tight, wages have continued to lag in defiance of expectations.
“There’s no basis for calling this a hot labor market — wage gains are barely enough to cover inflation and productivity gains. We hear companies saying labor is scarce, but we don’t really see wages responding,” he said.
Trump and White House economic adviser Larry Kudlow have publicly harangued Powell in recent months over the central bank’s reluctance to lower rates in service of the continued growth that Trump will rely heavily on for reelection.
“He’s not doing a good job,” Trump said in a television interview last month. “I have the right to demote him. I have the right to fire him.”
Asked during the hearing whether his future policy decisions will be influenced by political pressure, Powell adamantly denied that they would, and said he would not step down if asked to do so by the president.
“Of course I would not do that,” Powell said. “My answer would be no.”
Under the law, Fed chairmen can only be removed for cause, and no president has ever taken such a step.