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US shares hit record as Fed chair signals rate cut

Jerome Powell
Image copyrightREUTERS

US shares hit a record after the head of the central bank hinted at an interest rate cut to bolster growth.

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Analysis by Andrew Walker, BBC economics correspondent

As ever in a Federal Reserve Chair’s remarks, there was no commitment to cut interest rates.

But the emphasis on economic uncertainties and below target inflation suggests an increasingly high probability that the Fed will do just that.

The concerns he raised included weaker momentum in some foreign economies which could affect the US. He also mentioned “government policy issues that have yet to be resolved”.

His reference to trade developments was partly about the tension between the US and China. But there was one item on this list that isn’t for the US to address- Brexit.

He didn’t spell out the reasons, but the fact that he flagged it up indicates a concern that the UK’s departure from the EU might have an adverse impact on the US economy.

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The Fed has kept its current benchmark overnight interest rate in a range of between 2.25% and 2.50% since December. Mr Powell had first opened the door to a rate cut in comments made last month.

“Powell is setting it up, certainly for a July rate cut,” said Jack Ablin, chief investment officer at Cresset Capital.

And Briefing.com analyst Patrick O’Hare said Mr Powell’s comments “gave the market what it was looking for”.

The financial markets are indicating that the Fed at its 31 July meeting will cut interest rates by 25 basis points, although some analysts have seen the possibility of a larger cut.

His appearance on Capitol Hill comes at a sensitive time for both the Fed and Mr Powell personally, with President Donald Trump lashing out in a series of tweets for not cutting interest rates and needlessly slowing the economy.

At the same time, some blame Mr Trump’s own policies, in particular higher tariffs, and his unpredictable approach, for increasing the economic risks.

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