Fed Chief Jerome Powell just issued the strongest signal yet that the central bank will soon cut interest rates

Reuters

• Trade uncertainty and other global strains have risen in recent months and could lead the Federal Reserve to lower borrowing costs, Chairman Jerome Powell signaled Tuesday. 
• “If you see weakness, it’s better to come in earlier rather than later,” Powell said of rate adjustments at the Council on Foreign Relations in New York. 
• Ongoing tariff disputes between the US and major trade partners have dimmed forecasts for growth, with policymakers preparing to act to step in if conditions worsen.
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Trade uncertainty and other global strains have risen in recent months and could lead the Federal Reserve to lower borrowing costs, chairman Jerome Powell signaled Tuesday. 

“If you see weakness, it’s better to come in earlier rather than later,” Powell said of rate adjustments at the Council on Foreign Relations in New York. 

The Fed kept its benchmark interest rate unchanged last week and signaled a new openness to a cut in July. Ongoing tariff disputes between the US and major trade partners have dimmed forecasts for growth, with policymakers preparing to act to step in if conditions worsen.

“The question we’re going to ask ourselves is whether these uncertainties are going to continue to weigh on the outlook,” Powell said. 

Read more: Trump has been putting pressure on his Fed chief for nearly a year — and it’s raising serious questions about how the central bank is supposed to function

The Federal Open Market Committee has diverged on its forecasts for the rest of the year, with seven predicting that interest rates would be slashed by half a percentage point in 2019. 

Powell noted on Tuesday that key aspects of the economy solid, with unemployment at historic lows and softer inflation readings expected to pick up. 

“But we are also mindful that monetary policy should not overreact to any individual data point or short-term swing in sentiment,” he said. 

Powell also touched on the importance of Fed independence, opening his speech by mentioning “the damage that often arises when policy bends to short-term political interests.” Bloomberg reported last week that the White House had examined whether it could demote Powell, which President Donald Trump has denied. 

“I think we have long experienced that when you see central banks lacking those protections, you see bad things happening,” he said. 

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