August 23, 2019 / 2:43 PM / 5 months ago

TREASURIES-Yields fall as Powell says will "act as appropriate"

 (Recasts with comments from Fed's Powell, adds quote, updates
    * Fed's Powell says will act to sustain expansion
    * China unveils retaliatory tariffs
    * Traders see 100% chance of rate cut in September

    By Karen Brettell
    NEW YORK, Aug 23 (Reuters) - U.S. Treasury yields fell to
session lows after Federal Reserve Chair Jerome Powell said that
the U.S. economy is in a "favorable place" and the Federal
Reserve will "act as appropriate" to keep the current economic
expansion on track.
    Powell, under pressure from President Donald Trump to cut
interest rates soon and deeply, listed a series of economic and
geopolitical risks that the Fed is monitoring but said "the U.S.
economy has continued to perform well overall."             
    "Powell’s kind of sticking to the tone. It sounds very much
like the (Fed) minutes, he’s presenting the same arguments,"
said Gennadiy Goldberg, an interest rate strategist at TD
Securities in New York.
    "The one interesting point is he did talk about all the
risks that have happened since the July meeting, and that
suggests that he is allowing the markets to price in a September
move," Goldberg added.
    The U.S. central bank last month cut rates by 25 basis
points, but indicated further rate decreases may not be needed.
    The minutes of the July 30-31 meeting released on Wednesday
show that policymakers were divided on cutting rates in July,
and were united in wanting to avoid the appearance of being on
the path to further rate cuts.             
    But the bond market has priced in a far more bearish picture
of the economy since the Fed’s July meeting.
    The two-year, 10-year yield curve inverted last week for the
first time since 2007, a signal that a recession is likely in
one to two years. The curve has traded in and out of inversion
for the past three days.
    Interest rate futures traders are pricing in a 100% chance
of a rate cut at the Fed’s September meeting, up from 96% before
Powell's comments, according to the CME Group’s FedWatch tool.
    Powell’s comments came after China unveiled retaliatory
tariffs against about $75 billion worth of U.S. goods, marking
the latest escalation in a protracted trade dispute between the
world's two largest economies.
    The latest salvo from China comes after the United States
unveiled tariffs on an additional $300 billion worth of Chinese
goods, including consumer electronics, scheduled to go into
effect in two stages on Sept. 1 and Dec. 15.             
    The escalating U.S.–China trade war is weighing on business
sentiment even as investors are already worried about slowing
international growth.
    Benchmark 10-year notes            were last up 10/32 in
price to yield 1.577%, down from 1.610% late on Thursday.
    The two-year, 10-year yield curve                was last
0.80 of a basis point. 

 (Editing by Bernadette Baum and Jonathan Oatis)
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