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Fed Keeps Interest Rates on Hold Amid Favorable Economic Outlook

WASHINGTON—The Federal Reserve on Wednesday held interest rates steady and signaled borrowing costs are likely to remain unchanged indefinitely, with moderate economic growth and low unemployment expected to continue through next years presidential election.

“Our economic outlook remains a favorable one, despite global developments and ongoing risks,” Fed Chair Jerome Powell said in a news conference following the Feds decision to leave its benchmark overnight lending rate in its current target range between 1.50 percent and 1.75 percent.

“We believe monetary policy is well-positioned to serve the American people by supporting continued economic growth, a strong job market and inflation near our 2 percent goal,” Powell said.

New economic projections released by the Fed showed a solid majority of 13 of 17 policymakers foresee no change in interest rates until at least 2021. The other four saw a single rate hike next year.

No policymakers suggested lower rates would be appropriate next year, a sign the Fed feels it has engineered a “soft landing” after a volatile year in which recession risks rose, the U.S. bond yield curve inverted, and trade policy disrupted markets.

Still, the Fed noted, global risks warrant monitoring in the midst of an ongoing U.S.-China trade war, and inflation remains muted.

And given that inflation is lower than the Fed wants despite unemployment near a 50-year low, the handful of policymakers expecting higher rates may find it a hard sell.

Overall, policymakers see the unemployment rate, currently 3.5 percent, staying below their estimate of a sustainable level in the long run for another three years, even as most expect inflation by then to end up at, or just a little above, the 2 percent target, the new projections showed.

“I think weve 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.”

Indeed, the projections also showed policymakers as a group expect interest rates to remain accommodative—that is, below the 2.5 percent they estimate neither stimulates nor restricts economic growth—through at least 2022.

Stocks rallied modestly after the decision, which had been widely anticipated by investors. The benchmark S&P 500 index, which was largely flat when the Fed announced its policy decision, closed up about 0.3 percent.

Yields on U.S. Treasury securities fell in afternoon trading, with the 10-year note last yielding 1.79 percent. The dollar slid to a four-month low against a basket of major trading partner currencies.

There were no dissents to the policy statement, the first without opposition since the April 30-May 1 meeting.

Material Change

After the Feds October policy meeting, Powell said it would take a “material” change in the economic outlook for the central bank to change rates again, language he repeated on Wednesday, but didnt elaborate on. The Fed cut rates three times this year, including in October, “strong measures” that Powell said will take some time to fully show up Read More – Source