Fed's Powell hints rate cut on horizon

US stocks rallied on Wednesday after Federal Reserve Chairman Jerome Powell said the nation's economic outlook has not improved in the last few weeks, a strong indication the central bank will cut interest rates to boost flagging growth.

The S&P 500 crossed 3000 for the first time, and the Nasdaq Composite reached an all-time high. The Dow Jones Industrial Average snapped a three-day losing streak and rose in anticipation of a quarter-point cut in the Fed's benchmark federal funds rate, which ranges from 2.25 to 2.50 percent.

"Economic momentum appears to have slowed in some major foreign economies, and that weakness could affect the US economy," Powell told the House Financial Services Committee in Washington in his semiannual monetary report to federal lawmakers. "Moreover, a number of government policy issues have yet to be resolved, including trade developments, the federal debt ceiling and Brexit."

The Federal Reserve Bank of Atlanta said the economy grew at an annual rate of 1.3 percent in the second quarter after growing at a 3.1 percent annual rate in the first quarter.

US employers added 224,000 non-farm jobs in June, up from 72,000 created in May. New York investment bank Morgan Stanley expected 169,000 jobs to be added in June. It was the 105th consecutive month employment has increased, the Labor Department reported last week.

"It strongly suggests they're going to be inclined to ease at the meeting later this month," Michael Feroli, chief US economist at JP Morgan Chase, told Bloomberg TV. "He (Powell) continued to highlight the uncertainties that are weighing on the outlook rather than highlighting the better jobs report."

Representative Carolyn Maloney, a New York Democrat, asked if last week's strong jobs report changed the Fed's assessment of the nation's economy.

"The straight answer to your question is no," Powell said, a reply many believe is a clear indication that the Fed will cut rates, perhaps as soon as the July 30-31 meeting.

Trump has argued that current interest rates constrain growth. "We don't have a Fed that knows what it's doing," Trump said last week.

Representative Maxine Waters, a California Democrat and chairwoman of the committee, asked during the hearing how Powell would react if Trump telephoned and said, "'I'm firing you. Pack up. It's time to go.'"

Powell replied, "Of course, I would not do that."

"I can't hear you," Waters said, as laughter rippled through the packed hearing room.

"My answer would be no," Powell said.

"You would not pack up and would not leave?" Waters asked.

"No, ma'am," Powell said. "I have said what I intended to say on this subject."

Powell has stressed that he plans to serve his four-year term.

The Federal Reserve is an independent body and its actions are not subject to review by the president or anyone else, and by law, the Fed chairman can be removed only for cause.

The June employment report provided the first full-month look at the labor market since Trump raised tariffs on May 10, to 25 percent from 10 percent on Chinese imports valued at $200 billion.

"We've agreed to begin discussions again with China," Powell said. "While that's a constructive step, it doesn't remove the uncertainty."

Core inflation, excluding food and energy, remained below the Fed's 2 percent target.

"There is a risk that weak inflation will be even more persistent than we currently anticipate," Powell testified. Low inflation might make it easier for the Fed to justify a rate cut, especially as the global economy slows. However, Powell did not explicitly state interest rates will be cut later this month but laid out the case for a possible cut.

On Tuesday, The Wall Street Journal reported that Patrick Harker, president of the Federal Reserve Bank of Philadelphia didn't see an immediate need for a rate cut but said he would consider one if the economy declined sharply.

Powell said global economic indicators raise concerns that "weakness in the global economy will affect the US economy". He pointed to a decline in business investment.

In June, about half the Fed governors said lower interest rates would be needed in the second half of the year and about half saying rates should remain steady. Those advocating lower rates apparently see little risk to cutting rates because inflation is low, but others believe the softening in the economy doesn't yet warrant a rate cut.

A cut in interest rates would reduce yields on bonds and personal savings, making stocks more attractive. A cut would also lower borrowing costs, including rates on credit cards, and therefore might lower mortgage rates and encourage more consumer spending.

Powell is scheduled to testify before the Senate Banking Committee on Thursday.