Fed signals interest rates will be on hold through 2020
Fed keeps rates stable and signals pause in 2020
The US Federal Reserve kept interest rates stable at its December meeting on Wednesday, halting sequential rate cuts that boosted markets and countered the threat of a recession amid continuing trade uncertainty.
The Fed has signaled that the cost of borrowing will not change anytime soon, as moderate economic growth and historically low unemployment are expected until the 2020 presidential election..
The US financial authorities unanimously agreed to leave rates at the level of 1.5% to 1.75%, citing a political decision «appropriate» to continue the economic expansion of the country, which has been going on for 11 years.
The move is in line with market expectations as the Fed signals it plans to go into a long hiatus following the development of the US economy..
According to the updated forecast of the US central bank, 13 of the 17 members of the policymaking body of the Federal Open Market Committee expect interest rates to remain in 2020. Only four admitted that the stakes could be raised one notch. Notably, none of the politicians suggested that lower rates would be appropriate in the coming months..
That could disappoint President Donald Trump, who pressured Federal Reserve Chairman Jerome Powell last year to cut rates further, more recently during his White House meeting last month. Following this meeting on November 18, Trump tweeted that «protested» before Powell opposed interest rates being too high compared to other countries the United States competed with, and repeatedly accused him of undermining economic growth.
During a press conference on Wednesday, Powell declined to comment on what he discussed with Trump..
«Our economic outlook remains strong despite global changes and lingering risks», – said Fed Chairman Jerome Powell at a press conference shortly after the release of the latest policy statement and new quarterly economic forecasts.
«During the year, we adjusted our monetary policy stance to soften the economy and provide some insurance … This shift helped bolster the economy and keep the outlook», – he said.
At the same time, Powell does not believe that rates should rise in the near future..
«I think we learned that unemployment can remain fairly low for a long period of time without undue upward pressure on inflation.», – said Powell.
Compared to the 1990s, when the Fed cut rates as an insurance policy against a recession, and then raised them again to prevent fueling unwanted price increases in a narrow labor market, he said, today «need to raise rates less».
Inflation remains at its lowest level in a decade.
The Commerce Department said on Wednesday that consumer prices rose just 2.1% over the past year, but headline inflation remained below the Fed’s target range of 2%..
«We don’t need to worry so much about inflation», – said Powell, adding that he would need «constant» a jump in the rate of increase in prices so that he thinks it justifies higher interest rates.
The stock market reacted positively to Powell’s suggestion that rates should not rise. Dow spent all day in the red ahead of Powell’s comments.
US stocks rose slightly after a decision that was expected by investors. Base index S&The P 500, which barely changed when the Fed announced its policy decision, closed up 0.3%.