Date
18 January 2020
Federal Reserve Chair Jerome Powell speaks at a news conference in Washington on Wednesday after concluding a policy meeting. Photo; Reuters
Federal Reserve Chair Jerome Powell speaks at a news conference in Washington on Wednesday after concluding a policy meeting. Photo; Reuters

Fed keeps rates on hold, says economic outlook ‘favorable’

The US Federal Reserve on Wednesday held interest rates steady and signaled borrowing costs will not change anytime soon, with moderate economic growth and historically low unemployment expected to persist through the 2020 presidential election, Reuters reports.

In its final policy meeting of a tumultuous year, when it was spurred to cut interest rates three times to forestall a slowdown fueled largely by President Donald Trump’s trade war, the US central bank struck a remarkably sanguine tone, confident the actions it had taken so far are working, the report said.

“Our economic outlook remains a favorable one, despite global developments and ongoing risks,” Fed Chair Jerome Powell said in a news conference shortly after the release of the latest policy statement and new quarterly economic projections.

“As the year progressed we adjusted the stance of monetary policy to cushion the economy and provide some insurance … This shift has helped support the economy and has kept the outlook on track,” he said.

The policy decision left the Fed’s benchmark overnight lending rate in its current target range between 1.50 percent and 1.75 percent, three-quarters of a percentage point below where it started the year.

Powell, who at the start of his news conference read a brief tribute to the late Paul Volcker, the Fed’s inflation-fighting former chairman, said the central bank now sees the connection between low unemployment and inflation as “very faint.”

“We don’t have to worry so much about inflation,” Powell said, adding it would take a “persistent” jump in the pace of price increases for him to think it warranted higher interest rates.

Still, the Fed noted, global risks warrant monitoring in the midst of an ongoing US-China trade war, as does the possibility of a downshift in public inflation expectations.

Overall, Fed policymakers see the unemployment rate staying below their estimate of the long-run sustainable level for another three years, even as most expect inflation by then to end up at, or just a little above, the central bank’s 2 percent target, the new projections showed.

“I think we’ve learned that unemployment can remain at quite low levels for an extended period of time without unwarranted upward pressure on inflation,” Powell said.

Compared to the 1990s, he said, when the Fed cut rates as an insurance policy against a recession and then raised them again to prevent a tight labor market from fueling unwanted price rises, today “the need for rate increases is less.”

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