Spotlight: U.S. Fed holds rates steady, signals no changes through 2020

Source: Xinhua| 2019-12-12 16:42:59|Editor: xuxin
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WASHINGTON, Dec. 11 (Xinhua) -- The U.S. Federal Reserve on Wednesday left interest rates unchanged and signaled that it would keep rates on hold through 2020.

The Federal Open Market Committee (FOMC), the Fed's rate-setting body, decided to maintain the target range for the federal funds rate at 1.5 percent to 1.75 percent after concluding a two-day policy meeting, in line with market expectations.

"Information received since the Federal Open Market Committee met in October indicates that the labor market remains strong and that economic activity has been rising at a moderate rate," the Fed said in a statement, adding that household spending has been rising at a strong pace while business fixed investment and exports remain weak.

"The Committee will continue to monitor the implications of incoming information for the economic outlook, including global developments and muted inflation pressures, as it assesses the appropriate path of the target range for the federal funds rate," said the statement.

The Fed has lowered interest rates three times since July, amid growing risks and uncertainties stemming from trade tensions, weakness in global growth and muted inflation pressures.

"Our economic outlook remains favorable despite global developments and ongoing risks," Fed Chairman Jerome Powell told reporters at a press conference Wednesday afternoon.

"With our decisions through the course of the past year, we believe that monetary policy is well-positioned to serve the American people," Powell said, adding the current stance of monetary policy "likely will remain appropriate" as long as the U.S. economy stays on track.

The U.S. economy expanded at an annual rate of 2.1 percent in the third quarter this year, slightly up from the 2-percent growth rate in the second quarter but a sharp deceleration from 3.1 percent in the first quarter, according to the U.S. Commerce Department.

"As seen from FOMC participants' projections, the median expectation for real GDP growth slows slightly over the next few years but remains near 2 percent," Powell said, expecting the overall U.S. economy to continue growing moderately with supportive monetary and financial conditions.

The median estimate for the federal funds rate is at 1.6 percent at the end of 2020, suggesting no rate cuts or hikes in 2020, according to Fed officials' interest rate forecasts released on Wednesday.

"This reinforces our view that with the 2020 elections approaching, the Fed will keep interest rates on hold," said Joseph Brusuelas, chief economist with RSM US LLP, an audit, tax and consulting firm.

"In short, the Fed thinks it can err on the side of caution and has room to maneuver should the trade war intensify or if there is an exogenous shock to the economy," Brusuelas said, believing the Fed is unlikely to raise rates anytime soon.

"This strongly implies that there would need to be a robust reacceleration in the path of domestic and global growth, in addition to a significant rolling back of the trade conflict between Washington and Beijing, for the Fed to consider hiking rates," he said.

"The threshold to raise rates is still much higher than the threshold to cut rates going forward. Powell made it clear that he would need to see a sustained period of inflation before he raises rates," echoed Diane Swonk, chief economist at Grant Thornton, a major accounting firm.

"The idea that this was a mid-cycle adjustment in rates like we saw in the late 1990s no longer holds; the cuts look much more permanent," Swonk wrote Wednesday in an analysis, adding persistently low inflation could force the Fed to cut rates at least once again in 2020.

However, a majority of the 31 economists recently polled by Bloomberg expect that Fed officials won't allow the 2020 presidential election to sway their monetary policy decisions and will keep rates on hold for the next two years.