July 11, 2019

Powell testimony, FOMC minutes reaffirm NAFCU's position on rate cut

ratesMembers of the Federal Open Market Committee (FOMC) – the Federal Reserve's monetary policy-setting arm – noted that "a near-term cut in the target range for the federal funds rate could help cushion the effects of possible future adverse shocks to the economy," according to minutes from the committee's June meeting released Wednesday.

Participants also cited the possibility that federal budget negotiations could result in a sharp reduction to government spending or that negotiations to raise the federal debt limit could be prolonged.

Also Wednesday, Federal Reserve Chairman Jerome Powell testified before the House Financial Services Committee to present the Fed's semiannual Monetary Policy Report and offered insights to the FOMC's June meeting.

"Many FOMC participants saw that the case for a somewhat more accommodative monetary policy had strengthened," said Powell in his opening statement. "Since then, based on incoming data and other developments, 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."

Earlier this month, NAFCU Chief Economist and Vice President of Research Curt Long predicted that a combination of weak inflation, slowing economic growth and ongoing trade risks will prompt a rate cut in the third quarter. Long reaffirmed that a rate cut is imminent following the release of the FOMC minutes.

"The FOMC is poised for a 25-point rate cut later this month," said Long. "The FOMC's June statement laid the groundwork for such a move, and Chairman Powell’s testimony confirms that the recent jobs report – while solid – is not enough to put a halt to those plans.

"Following a rate cut in July, NAFCU believes the bar for further accommodation will be higher. There would need to be material weakening in the labor market or the broader economy for the more hawkish members of the committee to get on board with another rate cut," he added.

The FOMC will meet again July 30-31; Powell testifies before the Senate Banking Committee today.