• U.S. equity markets reached new all-time highs this week after Fed Chair Jerome Powell signaled the Fed would likely cut rates at its July meeting. Yet in Powell’s two appearances before Congress this week, along with the minutes from the Fed’s June meeting, policymakers appear to be focused on the increasing risks to economic growth.
  • Powell stressed ongoing uncertainties in his appearances before Congress, highlighting trade tensions and the strength of the global economy as areas of potential weakness.
  • The minutes from the Fed’s June meeting also outlined policymakers’ concerns. Fed members discussed a range of potential problem areas, from softening real residential investment to declines in manufacturing activity and weakening forecasts for corporate profit growth.
  • The chart provides a summary of policymakers’ views on uncertainties and projected risks released with Fed meeting minutes. It shows that Fed members view the current risk of weakening GDP growth as high as they have at any time since September 2012.1 Likewise, policymakers view the risk of softening inflation and higher unemployment readings as significant.1
  • As investors have celebrated the Fed’s increasingly accommodative stance, this week and over the past month, it is important to not overlook what policymakers see as growing risks to achieving a soft landing. Such an environment has often been ripe for periods of heightened market volatility.

1 Bloomberg, as of July 11, 2019, http://bit.ly/2LTspYl. Readings indicate FOMC members reported spread between downside risks versus upside surprises based on economic projections released with the FOMC minutes.

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