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3 Things Fed's Powell Told Congress Wednesday-- What Markets Think of it

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Federal Reserve chairman Jerome Powell's comments to the House Financial Services Committee were level-headed and rather implicit as usual, yet all indications were that there will be an interest rate cut soon. 

Here are three key comments he made indicating as much. 

Macro Factors a Risk

The G-20 talks between the U.S. and China were largely positive, but "that doesn't remove the uncertainty," Powell told Congress. He made it clear trade conflicts are still a concern, which would weigh on economic growth. 

Secondly, Powell mentioned many foreign economies are performing poorly, a situation that could bleed into U.S. economic growth. France, for example, issued negative yielding debt for the first time in its history, underscoring low inflation and poor economic demand. 

Low Inflation Expectations

Not surprisingly, "inflation pressures remain muted," Powell said. He mentioned the 3.1% wage growth is certainly not a negative, but that it's not enough to support higher inflation. The Fed's inflation target remains at 2%. 

June Jobs Report

The U.S. economy did add a net 224,000 jobs in June according to the Bureau of Labor Statistics, beating expectations of 140,000. One congresswoman asked Powell if that made hims less compelled to lower interest rates. His immediate response was "the answer is no." 

These are all strong indicators that there will soon be a rate cut. The 10 year treasury yield fell to 2.039% at one point, and remains down slightly on the day. The S&P 500 rose 0.42%, and touched a record high of 3,000 points. Both the stock and bond market had fully priced in a rate cut leading up to the hearing, but former adviser to the president of the Dallas Fed and Founder and CEO of Quill Intelligence Danielle DiMartino Booth told TheStreet Tuesday the market would still move the same way if Powell indicated a rate cut is on the way. 

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