Powell to open Chicago conference as rate cut talk intensifies

June 4, 2019

CHICAGO (Reuters) – Federal Reserve Chairman Jerome Powell gives opening remarks on Tuesday at a monetary policy conference focused on long-term issues, but set now to the backdrop of intensifying market speculation that global trade worries may force an imminent Fed rate cut.

While Powell’s remarks may well stay true to the theme of the two-day session at the Chicago Federal Reserve, organized as an exploration of broad monetary policy strategy and methods, investors will be attuned to any hint of his developing economic outlook.

Since the Fed last met, President Donald Trump has slapped new 25 percent tariffs on $200 billion of Chinese imports, taken aim at Chinese telecoms giant Huawei and extended the use of tariffs to achieve unrelated goals by threatening new import taxes on Mexico unless immigration slows.

To investors and even some of Powell’s colleagues, it has become a different world, with U.S. bond yields falling at some of their fastest rates since the 2007 to 2009 economic crisis and expectations the Fed may change its “patient” approach and reduce rates multiple times this year. Over the past five days the interest rate on the 2-year Treasury bond fell a third of a percentage point, the steepest five-day drop since 2008.

On Monday, St. Louis Fed President James Bullard became the first to say that the “darkened” outlook for trade warranted a rate cut as “insurance” against the possibility the trade war takes a deeper than expected bite out of U.S. economic growth. It could also offset the seeming pessimism that has taken hold in bond markets, Bullard said.

Analysts at NatWest Markets noted that the conference itself, stacked with academic presentations that go deep in the weeds on Fed inflation strategy, labor statistics, and other issues, is “not exactly the most fertile ground for a major, near-term policy signal.”

But Powell has used other stages to make a point. On Jan. 4, an American Economic Association question and answer session became his platform to tell investors the Fed was likely done raising rates and to shift the perception that the central bank was intent on tightening financial conditions.

(Reporting by Howard Schneider; Editing by Cynthia Osterman)

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