Republican Senators Defy Trump's Attacks to Support Powell

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"I think trade uncertainty is going to slow down global growth and that will feed back into the US economy".

- USA inflation pressures stir in June but Fed seen cutting on July 31.

Minutes of the Fed's June rate-setting meeting, released shortly after Powell concluded several hours of testimony before the US House of Representatives Financial Services Committee, further drove rate cut expectations.

"If last Friday's strong payroll report and a pause in the US-China trade war post-G20 didn't change the Fed's thinking on a July cut, we doubt today's modest upside surprise on core inflation will do the job", says Josh Nye at RBC Capital Markets.

At the hearing, Powell received bipartisan support for his independence at a time when the Trump administration is openly attacking the policies of the Federal Reserve.

The comments sparked much-needed relief on trading floors around the world, having suffered steep losses at the start of the week in reaction to a blockbuster United States jobs report that dented hopes for a steep Fed cut at its next policy meeting.

Following Mr Powell's comments, the dollar fell against a basket of currencies and the major share indexes opened higher.

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Additionally, regional Fed presidents in Richmond, Dallas, Philadelphia and Cleveland have all cast doubt on the need to cut interest rates at all.

But since criticism of the Fed by Mr Trump in May, both investors and the central bank have begun shifting their stance, with markets now expecting a cut of at least a quarter of a percentage point when Fed policymakers meet at the end of the month. "Until the Fed's meeting later this month, the prospect of a 50 basis point cut will continue ebbing back and forth on each major data release".

"He sent a pretty straightforward signal that they intend to lower interest rates, " said Ward McCarthy, chief financial economist at Jefferies LLC.

By contrast, the higher tariffs announced against China in early May, a fear that the world's two largest economies might not be able to make a deal, and the tariff threat against Mexico, all added to the growing feeling that protectionism and higher tariffs were here to stay - at significant cost to investment and growth.

The only question left seems to be: How low will borrowing costs go this month?

In his testimony on Wednesday, Powell pledging to "act as appropriate" to defend an economic expansion threatened by trade disputes and a global slowdown.

"I for one am glad to hear that's your conclusion, in part because I do think it's important the Fed remain insulated from political pressure", Toomey told Powell. It thus stands to reason that if a US-China trade deal materializes at any point in time, there will be a violent repricing of Fed rate cut odds.

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