Fed starting to see a case for rate cuts, Powell hints

Three red hot gold ingots cool after being removed from casting moulds

Delivering the Fed's semi-annual monetary report to Congress, Powell sent the strongest signal yet that the central bank is ready to cut interest rates for the first time in a decade, possibly as soon as the July meeting.

In prepared remarks to a congressional committee, Powell said concerns about trade policy and a weak global economy "continue to weigh on the US economic outlook" and the Fed stood ready to "act as appropriate" to sustain a decade-long expansion.

The Fed's last meeting came as policymakers anguished over the possibility that the longest economic recovery in USA history might be derailed because of slower global growth and a Trump administration trade war with China.

Powell contrasted the Fed's "baseline outlook" of continued US growth against a set of significant risks: persistently weak inflation, slower growth in other major economies, and a downturn in business investment driven by uncertainty over the duration and intensity of trade wars waged by the administration of US President Donald Trump - especially Trump's year-long trade war with China.

In a series of comments and tweets the USA president has accused the Fed of unnecessarily slowing the economy by not cutting rates.

"My sense is that Powell is more concerned about global financial conditions ... than he is pacified by a strong United States labor market", said Jim Caron from Morgan Stanley Investment Management. The probability of a half-percentage-point cut ticked higher on Wednesday, according to CME Group, but most still expected that policymakers would lower the benchmark interest rate by 25 basis points.

US Dollar Index retraces this week's gains on FOMC Chairman Powell's remarks. Almost all officials cut their forecasts for the short-term rate that the Fed controls, compared to the previous meeting, the minutes said.

The US economy did not change much in the days that followed Trump's May 30 comments on Twitter threatening to impose tariffs on Mexico unless the country met his demands for tougher controls on immigrants crossing its northern border.

"Uncertainties about the outlook have increased in recent months", he wrote.

During Wednesday's hearing, Powell reiterated his previous assertion that the Fed will "act as appropriate" to sustain the current economic expansion.

The cooling in US rate fever has seen bonds give back just a little of their huge rally, with yields on two-year Treasuries rising to 1.917% from the recent trough of 1.696%. U.S. equity markets got off to a bullish start to the day as the S&P 500 Index moved to make an all-time high after hitting the 3,000 mark - a remarkable level that traders have been optimistically eyeing over the past months.

The case for lowering borrowing costs isn't fully decided.

The greenback is under pressure in the early day, likely from some profit taking ahead of Fed Chair Powell's Testimony later today.