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Fed Could Signal Policy Shift in Cuts  06/19 06:09

   The Federal Reserve seems poised to pivot from keeping interest rates steady 
to holding out the option of cutting rates if it were to decide that the 
economic expansion needs support.

   WASHINGTON (AP) -- The Federal Reserve seems poised to pivot from keeping 
interest rates steady to holding out the option of cutting rates if it were to 
decide that the economic expansion needs support.

   The Fed isn't considered ready to announce that it's reducing rates for the 
first time in more than a decade. But when it ends its latest policy meeting 
Wednesday, the central bank is expected to signal an inclination to ease credit 
sometime within the next several months. What it won't likely do is indicate 
when that might happen.

   "I think the Fed is going to send the markets a clear signal that they are 
ready to lower rates in the very near future," said Brian Bethune, an economics 
lecturer at Tufts University.

   Bethune said he thinks the first rate cut will occur when the Fed next meets 
at the end of July and then a second one at its subsequent meeting in 
mid-September.

   "I will be looking for two rate cuts to have an impact," Bethune said.

   Other Fed watchers have said they aren't sure rates will be cut anytime 
soon. Many think the policymakers want at least to see whether a meeting that 
Presidents Donald Trump and Xi Jinping are to hold at the end of the month 
produces any breakthrough in the U.S.-China trade war.

   The Fed will announce its decisions Wednesday in a policy statement after 
its meeting, followed by a news conference with Chairman Jerome Powell. The 
central bank will also update its forecasts for economic growth, employment, 
inflation and interest rates.

   If investors are hoping for clarity about the Fed's policy plans for the 
coming months, they're likely to be disappointed. Some analysts think Powell 
will merely echo the theme he struck in a speech earlier this month: That the 
Fed will act if it thinks the Trump administration's trade conflicts are 
threatening the economic expansion. That comment signaled a shift from holding 
rates steady to at least the hint of rate cuts, and it ignited a stock market 
rally.

   Economists say when --- or even whether --- the Fed eases credit this year 
will depend on a host of factors that are hard to predict. Will Trump's trade 
wars be resolved before they inflict real damage on the economy? Will the job 
market remain resilient even as growth slows? Will inflation finally edge close 
to the Fed's target level?

   Many analysts think the Fed will wait until September at the earliest to 
announce its first drop in its benchmark short-term rate since 2008 and might 
not cut again in 2019. A few Fed watchers foresee no rate cut at all this year, 
especially if the United States and China reach some tentative resolution to 
the trade war.

   Complicating the timing of possible rate cuts is an escalation of public 
attacks on the Fed by Trump as he gears up for his 2020 re-election campaign. 
Trump's public criticism, a highly unusual action for a president, has raised 
concern that he is undermining the Fed's independence as a central bank. The 
president has asserted that under Powell's leadership, the Fed hurt the economy 
by tightening credit too much last year and by failing to lower rates since 
then.

   On Tuesday, Trump was asked about a news report that the White House in 
February had explored whether the president had the authority to demote Powell 
as chairman while leaving him on the Fed's board.

   "Let's see what he does," Trump said Tuesday of Powell. "They're going to be 
making an announcement very soon. So we'll see what happens."

   The president has previously explored firing Powell. But under the law, a 
Fed board member, like Powell, can be fired only for cause.

   The Fed is meeting at a time when the U.S.-China trade war, with its 
escalating tariffs and counter-tariffs on each other's products, has magnified 
concern and uncertainty for businesses and investors about whether and how much 
the economy will suffer. The U.S. manufacturing sector is already showing signs 
of weakness.

   In some encouraging news, Trump tweeted Tuesday that he had spoken by phone 
with Xi and that the two leaders plan "an extended meeting" at a Group of 20 
nations summit in Japan late next week. Trump also said that before his meeting 
with Xi, negotiators for the two sides will resume talks.

   Also Tuesday, Mario Draghi, head of the European Central Bank, said the ECB 
was ready to provide further stimulus if the eurozone economy doesn't 
strengthen soon.

   "Further cuts in policy rates," Draghi said, "remain part of our tools."

   Draghi's comments sent the value of the euro tumbling against the dollar, 
prompting an angry tweet from Trump accusing the ECB leader of acting to weaken 
the euro to gain a competitive trade advantage against the United States.

   Some Fed watchers think that in its policy statement Wednesday, the central 
bank will replace a reference to being "patient" about rate changes to some new 
phrasing that would hint at a forthcoming rate cut should it decide the economy 
needs it. When the Fed adjusts its key short-term rate, it influences rates on 
everything from mortgages to credit cards to home equity lines of credit and 
can help stimulate the economy.


(CZ)

 
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