Fed’s rate cut chatter grows as Kashkari backs half-point drop

Bloomberg

The drumbeat for a Federal Reserve interest rate cut is getting louder, with one policy maker calling for a 50 basis point reduction. Minneapolis Fed President Neel Kashkari said that he’d advocated for such a move at the central bank’s June 18-19 meeting, where officials ended leaving rates unchanged.
Other policy makers speaking didn’t go as far as Kashkari, considered one of the Fed’s more dovish officials. But their comments reinforced expectations that the Fed is on course to reduce rates, perhaps as soon as its July 30-31 gathering.
President Donald Trump, who’s sharply criticised Fed Chairman Jerome Powell for keeping credit too tight, said that he expects the central bank to lower rates. “Can’t win it all. Eventually he’ll do what’s right,” the president said of Powell. Powell deputy Richard Clarida said that the argument for easier policy has strengthened recently as the economic outlook has turned more uncertain.
“The case for providing accommodation has increased,” Fed Vice Chair Clarida said in a Bloomberg Television interview. “There’s been a marking down in global growth prospects. There’s been uncertainty about international trade.”
Trump is slated to meet Chinese President Xi Jinping at the June 28-29 summit of Group of 20 nations in Osaka, Japan, to try to head off a further escalation in the trade war between the world’s two biggest economies. The president also has threatened to impose tariffs on auto imports from Japan and the European Union.

‘DOWNSIDE RISKS’
Adding to the uncertainty are heightened tensions in the Middle East after Iran shot down a US drone and Trump tweeted he came within minutes of launching a retaliatory attack. Trump said that military action is “always on the table.” Fed Governor Lael Brainard also sounds open to a rate cut, even as she describes the US economic outlook as solid.
Recent weeks “have seen important downside risks,” Brainard said at a Fed event in Cincinnati, adding that the central bank must take those into account when setting policy.
A gauge of US factory activity fell in June to the lowest since late 2009 while a separate measure of the service sector edged down to a three-year low, according to surveys of business purchasing managers by IHS Markit.
The data suggest that “economic activity is rapidly downshifting,” said Joseph LaVorgna, chief economist for the Americas at investment bank and asset manager Natixis.
The Federal Open Market Committee’s vote to leave rates unchanged — in a 2.25 percent to 2.5 percent range — wasn’t unanimous. St. Louis Fed President James Bullard sought a quarter-point rate cut.
His vote marked the first dissent of Powell’s 16-month ten-ure as chairman. (Kashkari isn’t a voting member of the FOMC this year, although he will be in 2020). In a blog posting explaining his dissent, Bullard said he favored a cut to guard against downside risks of too-low inflation and weaker growth.
“Even if a sharper-than-expected slowdown does not materialise, a rate cut would help promote a more rapid return of inflation and inflation expectations to target,” he said.