Federal Reserve Chairman Jerome Powell said the central bank is“carefully monitoring” downside risks to U.S. growth and “will actas appropriate to sustain the expansion,” reiterating concerns lastweek that cemented expectations for an interest-rate cut later thismonth.

“Uncertainties about this outlook have increased, however,particularly regarding trade developments and global growth,”Powell told a dinner audience at the Bank of France in Paris onTuesday, referring to the Fed's baseline scenario for growth to“remain solid.” Federal Open Market Committee (FOMC) participants“have also raised concerns about a more prolonged shortfall ininflation below our 2 percent target,” he said.

Powell's remarks closely resembled his July 10-11 testimony toU.S. lawmakers and continue to support the case to lower rates whenthe Fed meets in two weeks, amid business uncertainties stemming from PresidentDonald Trump's trade policies and slower global growth.

Markets React

U.S. stocks initially trimmed losses after Powell's remarksbefore sinking again to end lower after Trump said he could imposemore tariffs on China. Earlier in the day traders reacted tobetter-than-expected economic data and comments by Trump abouttrade tensions with China. Ten-year U.S. Treasury yields weretrading around 2.11 percent in New York at 4:30 p.m., down from2.14 percent shortly before Powell's speech was released.

Investors fully expect a quarter-point cut at the Fed's July30-31 gathering, according to pricing in interest-rate futures, andthe debate has moved on to whether officials could ease by a moreaggressive, half-percentage point.

Chicago Fed President Charles Evans, speaking with reporterslater on Tuesday in Chicago, discussed the merits of cutting by ahalf point without clarifying whether he backed making such a move.“There is an argument that if I think that it takes 50 basis points[bps] before the end of the year to get inflation up, thensomething right away would make that happen sooner,” he said,adding that he was not worried about inflation taking offunexpectedly.

Evans also said that policymakers favoring a risk-managementapproach to lowering borrowing costs might prefer to move moreslowly, and he noted that the U.S. economy “is doing well.”

Global Links

At the event in Paris, Powell spoke broadly about the importanceof international linkages among economies and their commonchallenges. He specifically focused on low rates of inflation andlow interest rates, which are likely to hit zero again the nexttime central banks need to stimulate their economies.

“This proximity to the lower bound poses new complications forcentral banks and calls for new ideas,” Powell said, suggestingthat central banks should look beyond tools such as bond buying andforward guidance used in the last crisis. “We must continue toassess additional strategies and tools to bolster our economies andmeet our inflation and employment mandates.”

The Fed is engaged in a year-long review of strategies such asaverage inflation targeting, where a central bank runs inflation atslightly higher levels than its goal, to make up for periods whenit was too low. The exercise has included a number ofpublic-listening events around the country to hear fromrepresentatives of the labor, business, and low-income communitiesabout the economy and monetary policy.

The Fed has mostly missed its 2 percent inflation target sinceit adopted that goal in 2012.

Powell also noted in his remarks that demand for accountabilityand transparency are higher after the financial crisis. The Fedchairman has been persistently attacked by Trump for hispolicies.

“Our audience has become more varied, more attuned to ouractions, and less trusting of public institutions,” Powell said.“Central banks must speak to Main Street, as well as Wall Street,in ways we have not in the past, and Main Street is listening andengaged.”

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