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— This is the script of CNBC's news report for China's CCTV on June 05, 2019, Wednesday.
As the market became more convinced that the fed would cut interest rates this year, we got a very important signal overnight to confirm that possibility. The Fed chairman Powell said that the fed will take appropriate steps to keep the economy expanding.
U.S. Federal Reserve Chairman
We are closely monitoring the implications of these developments for the U.S. economic outlook and, as always, we will act as appropriate to sustain the expansion, with a strong labor market and inflation near our symmetric 2% objective
"Act as appropriate to sustain the expansion" is very important to the market as it shows the opening attitude of the fed to cut rates. In an interview with CNBC, fed vice chairman Clarida declined to comment on whether the fed will cut rates in June but he echoed to what Powell said, saying if the economy growth or underlying inflation is lower than expectation, then the fed will take actions.
Vice Chairman of the Federal Reserve
And if we get a sense that the outlook is slower -- growth is slower than we expect, and if we get the sense that underlying inflation is below where we want it to be, then as Chair Powell and I and others have indicated, we're going to put in place appropriate policy to achieve those goals. And whether or not that means acting preemptively or when the data comes in, it's just going depend on the context at the time. But understand that our goal is to put in place policies that not only achieve, but sustain price stability and maximum employment. And we'll do that if we need to.
However, the market is still divided on the fed's current stance, There are also voices warning that Powell's comments do not represent the fed shift to dovishness completely. Overnight, Powell also said he was watching trade talks and other events closely to see how they affect the outlook for the U.S. economy, and continued to stress a "wait and see" stance, with no hint of an imminent rate cut. Powell also made no mention of the inverted yield curve, suggesting the fed isn't overly concerned about the indicator.
Another way to guess whether the fed will cut rates immediately is the view of Chicago fed President Charles Evans, who is very dovish and usually the first one to support rates cut. However, in his speech overnight, he emphasized "wait and see" and in the exclusive interview with CNBC, he also said he will continue to wait and see the data, then that indicates the rates cut may not come soon.
We have indicated we're data-dependent. I'm a little nervous that inflation is under running our 2% objective. I said that six weeks ago. And you know, I think that, you know, there is a reason to be thinking about the stance of policy. I'm pretty comfortable with where we are at the moment in looking at the data, but there is uncertainty, for sure.
While the fed's rate cut message remains somewhat ambiguous, it seems to be enough for a strong market rally. Overnight, all three major U.S. stock indexes rallied, with the Dow Jones industrial average up 2.06 percent, the NASDAQ composite index grew2.65 percent, and the S&P 500 gained 2.14 percent. Markets see little chance of a rate cut in June, but there is no doubt that fed officials are now saying they have opened the door to looser monetary policy later this year. We will keep an eye on this issue.