Federal Reserve Chairman Jerome Powell said the U.S. economic outlook is "favorable" and that inflation is "continuing to move back up," as investors try to handicap the chances that the central bank will keep loosening monetary policy as President Donald Trump's trade war with China overshadows business conditions.
Powell said the U.S. economy has "continued to perform well" and is "in a good place," despite the risks posed by the trade war.
"The mostly likely outcome for our economy remains a favorable one," Powell said in a webcast discussion in Zurich with Swiss National Bank Chairman Thomas Jordan. But, he added, "trade policy will be weighing on business investment decisions."
Powell reiterated a pledge to "act as appropriate to sustain this expansion." The U.S. economy has now been growing for more than a decade, the longest such stretch in history.
But he also noted that the Fed is "committed" to "defending" its 2% inflation target -- a sign that the central bank might be inclined to cut interest rates to push up the pace of consumer-price rises.
Interest-rate cuts are the most common tool that the Fed uses to try to boost inflation, and the latest reading shows a 1.6% increase in consumer prices over the past 12 months, using the central bank's preferred measure.
Investors have assigned a near certainty to the likelihood that the central bank will cut the official U.S. interest rate at a meeting later in September for the second time in 2019, while speculating over the possibility of additional efforts to stimulate the economy in the rest of the year.
The Fed's monetary-policy panel, officially known as the Federal Open Market Committee, cut interest rates in July by 0.25 a percentage point to a range between 2% and 2.25%, citing an unusually low inflation rate and risks to the economy from President Donald Trump's trade war with China.
It was the first rate cut since the aftermath of the 2008 financial crisis, and a reversal of the Fed's efforts in 2018 to raise borrowing costs as the economy strengthened.
Yet in 2019, the U.S. economy has slowed, with manufacturers reporting a drop in orders and jobs growing at a slower pace, prompting the Fed to shift toward loosening financial conditions with interest rate cuts.
Trading in Chicago futures markets indicates that investors see a 100% probability that the Fed will cut rates by at least 0.25 a percentage point at the next meeting, scheduled for Sept. 17-18. And there's better than 50% odds that rates will get cut by another 0.5 a percentage point over the rest of the year.
Trump has called for further rate cuts to provide "support" for his trade war with China, even as he tweeted that the economy is "too strong."
Powell said Friday that the Fed is committed to "non-political decision making, based on the best analysis we can muster."
Recent public appearances by Fed officials have reinforced market perceptions that the September rate cut is all but certain.
On Wednesday, Federal Reserve Bank of New York President John Williams, a top economic advisor to Powell, said he's "laser-focused" on the stubbornly low U.S. inflation rate , possibly a sign that he's inclined to cut official interest rates at the September meeting.
In a speech in New York, Williams said that low inflation is "indeed the problem of this era" and a "reflection of the broader economic picture."