Fed opens door to rate cut amid growing 'uncertainties'

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Rates were left on hold at the conclusion of its two-day meeting, but it suggested a reduction of as much as 0.5 percentage points could occur this year.

The Fed did not move on rates on Wednesday, electing to keep the benchmark interest rate in the target range of 2.25% to 2.5%.

"Some of these developments are so recent that we want to see whether they're sustained", he said.

Clarida said there was "broad agreement" that the case for rate increases had grown stronger in recent weeks.

The Dollar had already been under pressure in the wake of the Fed's latest policy event which saw Powell and his team indicate they were ready to start cutting interest rates, markets are now expecting two interest rate cuts in 2019 with the first coming as early as July.

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The Fed noted in its statement Wednesday that "indicators of business fixed investment have been soft", and said that "inflation for items other than food and energy are running below 2 percent", reflecting downgrades to the language it used to describe investment and inflation following the early May meeting. But Powell said he intends to complete his four-year term, even if formally asked to step down.

"Let's see what he does", responded the US president, when asked whether he would oust Powell, whom Trump had appointed, denying Powell's predecessor, Janet Yellen, a second term. "Basic risk management principles argue for softening expected rate path when risks shift to the downside", Brainard explained.

Therefore, the threat to the independence and stability of the Federal Reserve is something that will come alive in a major way were the USA economy to start slowing over coming months. US economic data has also been choppy, with a weak recent jobs report and signs the manufacturing sector is slowing. The drop in inflation, however, was a blow for a central bank hoping to reach its target sometime next year.

While the Fed's mandates from Congress refers to maintaining "stable prices", central bankers globally feel that a bit of inflation is healthy. "And wages have been rising".

The threat of inflation drifting downward is twofold.

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Waiting too long means more aggressive Fed action could be required. In an era when the benchmark policy rate is already so low, that could mean again hitting the zero lower bound and forcing the politically hard decision to ramp up "unconventional" policy tools like bond-buying once again.

"While the bar was set high, policymakers appear to have cleared it easily while also leaving themselves with plenty of outs".

Every time Federal Reserve chair Jerome Powell meets the media for a monetary policy announcement, U.S. President Donald Trump is the ghost at the feast.

James Bullard, president of the Fed's St Louis regional branch, voted against the decision, saying he wanted to see the federal funds rate cut by 25 basis points at this meeting.

"Inflation measures have declined substantially since the end of a year ago and are presently running some 40 to 50 basis points below the FOMC's 2% inflation target", Bullard said in a prepared statement.

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" It seems unlikely that the United States will experience a surge of inflation while the rest of the developed world suffers from low inflation".

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