Roundup: Fed officials send mixed signals on rate cut ahead of policy meeting

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WASHINGTON, Sept. 4 (Xinhua) -- Several current and former officials from the U.S. Federal Reserve have sent mixed signals on whether the central bank should cut interest rates at its policy meeting later this month, paving the way for a likely divided vote.

New York Federal Reserve President John Williams said in a speech in New York City Wednesday that low inflation is indeed the "problem of this era" and promised to use monetary policy to "sustain" economic growth, while not specifying whether he would support a rate cut.

"Persistently low inflation is a key area of my attention," Williams said, noting that the Fed's preferred inflation gauge, the core personal consumption expenditures (PCE) price index, which strips out volatile food and energy prices, recorded 1.6 percent, lower than the central bank's 2-percent target.

"On our own shores, concerns around trade policy with China are adding to an uncertain picture. My contacts in the business community have said this is making them more cautious about investment. The effects of this angst are already showing up in the investment numbers," Williams said.

On Tuesday, Federal Reserve Bank of Boston President Eric Rosengren said that the U.S. Fed should not cut rates under the current circumstances, signaling he might vote against lowering interest rates in the upcoming policy meeting.

"If the data continue to indicate a U.S. economy growing slightly above the level considered to be the economy's potential growth rate, with continued gradual increases in wages and prices, then in my view, no immediate policy action would be required," Rosengren said in a speech delivered at Stonehill College in the U.S. state of Massachusetts.

Rosengren, along with Kansas City Fed President Esther George, dissented to the central bank's rate-cut decision at its latest policy meeting in late July, as they "preferred" to maintain the target range for the federal funds rate at the previous level.

In contrast to Rosengren, St. Louis Federal Reserve President James Bullard said Tuesday that the central bank should cut interest rates by 25 basis points as the financial market has expected for a rate cut amid a global trade war, according to a Reuters report.

Bullard said the current Fed interest rates are "too high," noting that the central bank's target for the federal funds rate of 2-2.25 percent was higher than the current yield of all U.S. Treasury securities.

Former Fed officials have also shared their thoughts on the central bank's monetary policy. "As I saw it, the combination of the trade war and the president's attacks on the Fed threatened to put the central bank in an untenable position," Bill Dudley, former president of the Federal Reserve Bank of New York, wrote in a Bloomberg opinion article published Wednesday.

"The Fed needs to be cautious that it does not inadvertently enable the president's trade war with China," said Dudley, whose earlier remarks calling on the central bank to refuse to play along with Trump's trade policy sparked wide controversy.

U.S. President Donald Trump on Tuesday renewed criticism of the U.S. Fed's monetary policy, when he tweeted that the Fed "fails to act" when "Germany, and so many other countries, have negative interest rates," urging the central bank to cut rates.

In an interview with business news channel CNBC Wednesday, former Federal Reserve Chairman Alan Greenspan said negative interest rates have been seen around the world, and it's "only a matter of time" before it reaches the United States, adding that investors should watch the 30-year Treasury yield, which could be a good indicator of what is happening.

On July 31, the central bank trimmed the target for the federal funds rate by 25 basis points to a range of 2-2.25 percent after concluding its latest policy meeting, the first rate cut since the 2008 global financial crisis, amid rising concerns over trade tensions, a slowing global economy and muted inflation pressures.

U.S. manufacturing activities contracted for the first time in three years in August, as the purchasing managers' index (PMI) registered 49.1 percent, according to data released Tuesday by the Institute for Supply Management. Last week, the U.S. Commerce Department revised down the growth of gross domestic production (GDP) in the second quarter to 2 percent from an initial estimate of 2.1 percent.

"Trade policy uncertainty seems to be playing a role in the global slowdown and in weak manufacturing and capital spending in the United States," Fed Chairman Jerome Powell said last August at the Kansas City Fed's annual research conference in Jackson Hole, U.S. state of Wyoming.

"While monetary policy is a powerful tool that works to support consumer spending, business investment and public confidence, it cannot provide a settled rulebook for international trade," Powell said.

The central bank will hold its next policy meeting on Sept. 17-18. Traders see an over 90-percent chance of a 25-basis point-interest rate cut at the meeting, according to Chicago Mercantile Exchange Group's FedWatch tool. Enditem

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