• Powell backs more rate hikes as economy growing 'considerably stronger'
The U.S. economy is running at a fast enough pace to justify continued interest rate increases, Federal Reserve Chairman Jerome Powell said Tuesday.
Powell is delivering his semiannual testimony to Congress this week, starting with an appearance Tuesday before the Senate Committee on Banking, Housing and Urban Affairs.
"Overall, we see the risk of the economy unexpectedly weakening as roughly balanced with the possibility of the economy growing faster than we currently anticipate," Powell said.
"The unemployment rate is low and expected to fall further. Americans who want jobs have a good chance of finding them," he added.
Though the economy grew at just a 2 percent pace in the first quarter, Powell said growth in the second quarter was "considerably stronger than the first."
"Robust job gains, rising after-tax incomes, and optimism among households have lifted consumer spending in recent months. Investment by businesses has continued to grow at a healthy rate," he said. "Good economic performance in other countries has supported U.S. exports and manufacturing. And while housing construction has not increased this year, it is up noticeably from where it stood a few years ago."
Inflation is running around the Fed's 2 percent target for the first time in several years, while the unemployment rate is at 4 percent and consistent with a level that most economists consider near to full employment. Powell said wages are growing faster than a year ago but not enough to stoke inflation fears.
Powell made brief mention of the ongoing trade war between the U.S. and its global competitors, saying only that it is "difficult to predict" what the ramifications will be on the economy.
However, the "upbeat tone" from the testimony likely means the trade issues won't keep the Fed from hiking rates, said Andrew Hunter, U.S. economist at Capital Economics.
• With the U.S. economy firing on all cylinders, the Federal Reserve should ease away from monetary policy accommodation and move interest rates up far enough to prevent unwanted inflation but not so fast that a recession ensues, a U.S. central banker said Tuesday.
“At a time of full employment with price stability, policy should be a neutral influence on economic activity,” Kansas City Federal Reserve Bank President Esther George said in remarks prepared for delivery to an agricultural symposium. “Gradual further increases in our policy rate will be necessary to return policy to a neutral stance, although there is considerable uncertainty about exactly how far or fast we need to go.”
• The dollar rose on Tuesday as Federal Reserve Chairman Jerome Powell provided an upbeat assessment on the U.S. economy while downplaying the impact of current global trade policy discussions on the outlook for further monetary tightening.
In afternoon trading, the dollar rose 0.46 percent at 94.945 .DXY against a basket of six major currencies. The dollar hit a 12-month high of 95.53 in late June and has rallied more than 5 percent in the past three months.
Against the yen, the dollar hit its highest level since January, trading up 0.49 percent at 112.83 yen JPY=.
The euro declined 0.4 percent against the dollar to $1.1661 after weakening half a percent last week.
• Analysts are uncertain how the Fed would react if the trade conflict with China worsens - either with aggressive rate increases because of the inflationary effect of the import tariffs or with a pause in the cycle because of growth dampening.
• U.S. industrial production increased in June, boosted by a sharp rebound in manufacturing and further gains in mining output, the latest sign of robust economic growth in the second quarter.
• U.S. President Donald Trump said he discussed North Korea’s nuclear weapons program with Russian President Vladimir Putin in their meeting on Monday, and that the two leaders also discussed reducing nuclear weapons worldwide.
Trump, speaking to reporters at the White House on Tuesday, said there was no need to rush regarding North Korea, and that there was no time limit to act.
U.S. President Donald Trump tried on Tuesday to calm a storm over his failure to hold Russian President Vladimir Putin accountable for meddling in the 2016 U.S. election, saying he misspoke in a joint news conference in Helsinki.
Trump stunned the world on Monday by shying away from criticizing the Russian leader for Moscow’s actions to undermine the election and cast doubt on U.S. intelligence agencies, prompting calls by some U.S. lawmakers for tougher sanctions and other actions to punish Russia.
• U.S. House of Representatives Speaker Paul Ryan on Tuesday said he is willing to consider additional sanctions on Russia, and reiterated his support for U.S. intelligence community findings that Russia interfered in the 2016 election.
• Speaking to reporters a day after President Donald Trump’s meeting with Russian President Vladimir Putin, Ryan said if congressional committees believe further sanctions on Russia are necessary, “I’m more than happy to consider those.”
“Russia is a menacing government that does not share our interests and it does not share our values,” he said.
• Japan and the European Union signed a wide-ranging free trade deal on Tuesday that both sides hope will act as a counterweight to the protectionist forces unleashed by U.S. President Donald Trump.
The deal removes EU tariffs of 10 percent on Japanese cars and 3 percent on most car parts. It would also scrap Japanese duties of some 30 percent or more on EU cheese and 15 percent on wines, and secure access to large public tenders in Japan.
• The European Central Bank should not tie its hands too early when it comes to future monetary policy decisions but look instead at how the economy pans out, Finland’s new central bank governor Olli Rehn told Reuters on Tuesday.
The ECB said last month it expects to end its 2.6 trillion euro ($3.0 trillion) bond-buying program at the end of the year and to keep interest rates at their current, record low level “through the summer of 2019”, leading investors to price in a hike in October of next year.
• Crude oil futures steadied on Tuesday as the focus turned to falling inventories in the United States and further output constraints in Venezuela and Libya.
Supply disruptions in Venezuela returned to the forefront as two of the country’s four crude upgraders are scheduled to undergo maintenance in the next few weeks. The units have the ability to process a combined 700,000 barrels per day, and are used to prepare extra-heavy oil for export.
U.S. West Texas Intermediate crude (WTI) settled up 2 cents at $68.08 a barrel.
Brent futures rose 32 cents to $72.16 a barrel, after earlier trading as low as $71.35 a barrel, its lowest level since April 17.
Reference: Reuters, CNBC
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