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Powell Says Crosscurrents Continue To Weigh On U.S. Economic Outlook

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Reigniting optimism about a near-term interest rate cut, Federal Reserve Jerome Powell is prepared to tell lawmakers that crosscurrents have continued to weigh on the U.S. economic outlook since the central bank's June meeting.

Powell's prepared remarks before the House Financial Services Committee on Wednesday note crosscurrents, such as trade tensions and concerns about global growth, have been weighing on economic activity and the outlook.

The Fed chief points out that increased uncertainties about the economic outlook and muted inflation pressures led the central bank to pledge to "act as appropriate to sustain the expansion" at its June meeting.

Powell notes that many meeting participants saw that the case for a somewhat more accommodative monetary policy had already strengthened.

"Since then, based on incoming data and other developments, it appears that uncertainties around trade tensions and concerns about the strength of the global economy continue to weigh on the U.S. economic outlook," Powell says in his prepared remarks.

Powell says overall economic growth appears to have moderated in the second quarter after a strong first quarter driven largely by net exports and inventories.

While Powell notes consumer spending growth appears to have bounced back in the second quarter, he says growth in business investment seems to have slowed notably amid concerns about trade tensions and slower growth in the global economy.

"In addition, housing investment and manufacturing output declined in the first quarter and appear to have decreased again in the second quarter," Powell says.

The Fed chairman also notes inflation pressures remain muted, with consumer price inflation running below the central bank's symmetric 2 percent objective.

Powell says the Fed's baseline outlook is for economic growth to remain solid, labor markets to stay strong and inflation to move back up over time to the 2 percent objective but warns uncertainties about the outlook have increased in recent months.

"In particular, economic momentum appears to have slowed in some major foreign economies, and that weakness could affect the U.S. economy," Powell says. "Moreover, a number of government policy issues have yet to be resolved, including trade developments, the federal debt ceiling, and Brexit."

"And there is a risk that weak inflation will be even more persistent than we currently anticipate," he adds. "We are carefully monitoring these developments, and we will continue to assess their implications for the U.S economic outlook and inflation."

Powell also warns the U.S. continues to confront important longer-run challenges, including lower labor force participation by those in their prime working years, the relative stagnation of middle and lower incomes, and low levels of upward mobility for lower-income families.

The House Financial Services Committee hearing is scheduled to begin at 10 am ET, with Powell's prepared remarks to be followed by a question-and-answer segment.

Powell is due to head to the other side of the Capitol on Thursday for testimony before the Senate Banking Committee.

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