Date
20 September 2019
US Federal Reserve Chairman Jerome Powell speaks at a news conference in Washington on Wednesday following the conclusion of a two-day policy meeting. Photo: Reuters
US Federal Reserve Chairman Jerome Powell speaks at a news conference in Washington on Wednesday following the conclusion of a two-day policy meeting. Photo: Reuters

Fed sees no rate hikes in 2019, sets end to asset runoff

The US Federal Reserve on Wednesday brought its three-year drive to tighten monetary policy to an abrupt end, abandoning projections for any interest rate hikes this year amid signs of an economic slowdown, Reuters reports.

Downgrading the US growth, unemployment and inflation forecasts, the central bank said the benchmark Fed funds rate is likely to remain at the current level of between 2.25 percent and 2.50 percent at least through this year.

Rates are now seen peaking at 2.6 percent, sometime in 2020, roughly a percentage point lower than the historic average for the fed funds rate and a sign that the US economy has entered a more sluggish era, the report said.

Following a two-day policy meeting, Fed officials no longer see the need to move rates to a “restrictive” level as a guard against inflation, which remains lodged below the central bank’s 2 percent target.

They also said that as of May they would slow their monthly reduction of as much as US$50 billion in asset holdings, and halt them altogether in September, ending what amounted to a second lever of monetary tightening that had run in the background since late 2017.

In terms of interest rates, the new Fed projections knocked the number of hikes expected this year to zero from the two forecast in December, completing a pivot to a less aggressive policy in the face of an apparent jump in economic risks.

At least nine of the Fed’s 17 policymakers reduced their outlook for the fed funds rate, a comparatively large number.

“It may be some time before the outlook for jobs and inflation calls clearly for a change in policy ,” Fed Chairman Jerome Powell said at a press conference following the policy meeting, at which policymakers reaffirmed they will be “patient” before moving rates again.

“Patient means that we see no need to rush to judgment,” Powell said.

Continued growth and a healthy jobs market remains “the most likely” scenario for the US economy, the Fed’s rate-setting committee said in a policy statement on Wednesday.

But doubts have accumulated, with a slowdown in household spending and business investment at the start of this year possibly signaling an early end to a growth spurt triggered in 2018 by a massive tax cut package and government spending.

The economic projections released on Wednesday showed policymakers at the median see the US economy growing only 2.1 percent in 2019, a full percentage point below the roughly 3 percent growth that was seen in 2018.

Powell said there are ongoing risks, including those related to Britain’s exit from the European Union, US trade talks with China, and even the outlook for the US economy, which he said the Fed is watching closely.

“The data are not currently sending a signal that we need to move in one direction or another, in my view,” he said. “It’s a great time for us to be patient.”

The new economic projections showed weakening on all fronts compared to the Fed’s forecasts from December. In addition to the growth slowdown, the unemployment rate for 2019 is forecast at 3.7 percent, slightly higher than forecast three months ago.

Inflation for the year is now seen at 1.8 percent, compared to the December forecast of 1.9 percent.

“Growth of economic activity has slowed from its solid rate in the fourth quarter,” the Fed said.

“Recent indicators point to slower growth of household spending and business fixed investment in the first quarter … overall inflation has declined.”

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