Fed chief Powell downplays low inflation, dashing hopes for a rate cut

Stephen Moore has been suggested for a seat on the Fed board

In his latest Twitter attack, Mr Trump had slammed the Fed for "incessantly" raising interest rates despite low inflation, and called on officials to cut the rate by a full percentage point. But the Fed's shift on 2019 interest-rate policy - ceasing its program of rate hikes - has been real, and warranted, given the financial market reaction. The Nasdaq Composite slipped 45.75 points to to 8,049.

In Wednesday's meeting the Fed opted to hold rates steady at its target range of 2.25% to 2.5%, highlighting inflation that is "running below" its target.

The weak inflation number, however, will not trigger a rate cut, according to Fed Chair Jerome Powell.

The Federal Reserve made a decision to keep USA interest rates steady at 2.25 to 2.5 per cent, on Wednesday (local time), and signalled that a rate cut - or hike - would not be happening any time soon.

"We don't think about short term political considerations, we don't discuss them and we don't consider them in making our decisions one way or the other", he said.

Yields on U.S. Treasuries improved on Powell's comment.

Italian 10-year bond yields fell three bps to its lowest in over two weeks at around 2.53 percent, while Portuguese yields hit fresh historic lows at 1.09 percent.

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Oil and metals markets added to the pressure on stocks as traders knocked copper to a 2-1/2 month low and used news of record US oil production to cash in some of Brent's near 33 percent rise this year. Last year, the Fed increased rates four times - and a total of nine times since December 2015.

After a two-day meeting in Washington, the central bank said borrowing costs will remain unmoved between 2.25pc and 2.5pc as U.S. economic growth remains "solid" and the labour market "strong".

The chief concern flagged in the policy statement was the now "muted" level of inflation, which continues to fall short of the Fed's 2 percent target. Moore, when he's not calling for the president to fire Powell (whom Trump named to the job less than two years ago) has been calling for steep cuts in interest rates.

The Fed chief, however, did not rule out the probability of rate cuts if the core inflation persistently stayed below 2 percent. The US dollar has also reversed and is now stronger. If Powell can't find the right language to explain the Fed's moves, people might draw a number of conclusions, from assuming that the Fed has capitulated to the President's whims, to predicting that the economy is in trouble.

US gross domestic product rose at a robust 3.2 percent rate in the first quarter of this year, beating market estimates of 2.3 percent. The labor market remains robust, with unemployment at around a half- century low and wage gains near the best pace of this expansion.

The statement suggested that the decline in inflation might be more persistent than expected and was no longer to be blamed simply on falling energy prices.

"We don't expect much further sustained depreciation of the Australian dollar", said Commonwealth Bank's chief currency strategist Richard Grace. It is not the first time that Trump has asked the Federal Reserve for lower interest rates, which makes the cost of borrowing cheaper and tends to encourage consumers and businesses to spend and invest.

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