Fed Leaves Rates on Hold; Forecasts Show No Change Through 2020
The Federal Reserve left interest rates unchanged and signaled it would keep them on hold through 2020.
(Bloomberg) --
The Federal Reserve left interest rates unchanged and signaled it would stay on hold through 2020, keeping it on the sidelines in an election year while also opening the possibility it might buy short-term coupon-bearing securities to ease money-market strain.
“Our economic outlook remains a favorable one despite global developments and ongoing risks,” Chairman Jerome Powell told a press conference Wednesday in Washington following the decision. “As long as incoming information about the economy remains broadly consistent with this outlook, the current stance of monetary policy likely will remain appropriate.”
The Treasury 10-year yields fell below 1.8%, the dollar declined and U.S. stocks edged higher. Powell spoke after the Federal Open Market Committee held the target range of the federal funds rate steady at 1.5% to 1.75% and its median forecast showed no rate change through next year.
“The FOMC’s monetary policy message is that the Fed is on hold and that it would take some significant change in the outlook to induce the Fed to move,” Roberto Perli, a partner at Cornerstone Macro LLC in Washington, wrote in a note. “Powell, however, made some news when talking about the problems affecting the repo market.”
Powell told reporters that the committee might consider widening reserves management-related Treasuries purchases to include short-term coupon-bearing securities, if necessary, to ease liquidity strains in money markets.
The Fed, in its first unanimous vote since May, said it will continue to monitor the implications of data for the economic outlook “including global developments and muted inflation pressures.” Officials also removed an earlier reference to “uncertainties” remaining about the outlook.
Powell reinforced the message, telling reporters that “both the economy and monetary policy right now are in a good place.”
Policy makers had been widely expected to leave rates on hold after three straight cuts that helped calm concerns the economy could falter. Officials forecast their policy remains supportive of growth in coming years -- even with the U.S. and China yet to reach a trade deal, Brexit’s future in question ahead of Thursday’s U.K. election and a lackluster global economic picture.
What Our Economists Say
“The Federal Reserve is keen to remove itself from election-year economic developments, and reinforced this message by raising the threshold for interest-rate action anytime soon. Policy makers are still concerned by below-target inflation and global risks, but they are increasingly confident that the policy adjustment incorporated since July will be sufficient to stabilize growth, unemployment and inflation at desirable levels.”
-- By Carl Riccadonna, Yelena Shulyatyeva and Andrew Husby
Click here for the full note
The FOMC repeated in its statement that economic activity has been rising at a “moderate” rate with “solid” job gains.
The record-long U.S. economic expansion is in its 11th year, a run that has driven unemployment to the lowest level since 1969 even while failing to sustainably deliver inflation at the Fed’s 2% target.
Officials also released new quarterly forecasts. These showed:
- The median estimate for the fed funds rate is at 1.6% at the end of 2020, 1.9% in 2021 and 2.1% in 2022. Thirteen officials expect rates to stay on hold next year, while four see a hike as appropriate.
- The jobless rate is expected to be 3.5% by late 2020, the same as it is now. The long-run unemployment rate is seen at 4.1%, down from 4.2% in September.
Powell will mark his second anniversary as Fed chairman in February. He has endured a barrage of attacks from President Donald Trump, who picked him for the job but has labeled Fed policies “ridiculous” and “pathetic” and called for steeper rate cuts.
Now, after decisively loosening monetary policy following rate hikes in 2018, Powell has a shot at pulling off a soft landing.
While factory gauges suggest that segment of the economy is in a slump, Fed officials say they are counting on consumer spending to keep the expansion going. Wages are rising faster than inflation, and employers continue to add jobs with nonfarm payrolls rising 266,000 in November. Economists surveyed by Bloomberg expect growth to cool next year but remain near to the long-run trend.
The Fed’s rate cuts have also eased borrowing costs and pushed stock prices to record highs, which may support greater spending by boosting wealth and lifting confidence.
--With assistance from Kristy Scheuble, Sophie Caronello, Benjamin Purvis, Ana Monteiro and Alexandra Harris.
To contact the reporters on this story: Craig Torres in Washington at ctorres3@bloomberg.net;Matthew Boesler in Washington at mboesler1@bloomberg.net
To contact the editors responsible for this story: Alister Bull at abull7@bloomberg.net, Jeff Kearns, Scott Lanman
©2019 Bloomberg L.P.