US Fed keeps key rate unhanged
Credit to Author: AGENCE FRANCE-PRESSE| Date: Thu, 31 Jan 2019 16:23:29 +0000
WASHINGTON, D.C.: The Federal Reserve left the key US lending rate unchanged on Wednesday (Thursday in Manila) and said it would be “patient” about making any further changes, in the clearest signal yet the central bank has heeded concerns about the economy.
And Federal Reserve Chairman Jerome Powell followed that dovish statement by saying “the case for raising rates has weakened somewhat,” given low inflation and amid “cross-currents and risks” buffeting the US economy that will be around for a while.
“In this environment we believe we can best support the economy by being patient in evaluating the outlook before making any future adjustment to policy,” Powell said at a press conference.
Although the Fed expects that continued expansion of the economy and strong job growth are the “most likely outcomes,” the statement signaled the growing uncertainty about the outlook.
“In light of global economic and financial developments and muted inflation pressures, the committee will be patient as it determines” the timing and need for any further increases, the policy-setting Federal Open Market Committee said.
In an unusual separate statement, the Fed also said it was prepared to change the pace of reduction of its massive securities holdings, after markets became concerned that the current process was too rigid.
The language used by the FOMC, after the unanimous vote to keep the benchmark interest rate in a range of 2.25 percent to 2.5 percent, reflected the increasing sense that the US economy may have peaked.
It cited “solid” economic growth, rather than a “strong rate of growth” highlighted in prior statements.
The decision at the Fed’s first policy meeting of the year was expected after central bankers signaled strongly in recent weeks that they intended to tread cautiously about any further moves.
But the unusually dovish language likely will come as a surprise.
US stocks added to gains following the Fed statement, with the Dow spiking after the statement and closing up 1.8 percent.
The dollar also weakened sharply after Powell’s news conference, with the euro at $1.1477 shortly after 2100 GMT, compared to $1.1421 just before the statement.
The FOMC increased the benchmark rate four times last year but rising concerns about a slowing US economy, amid a trade war with China, prompted officials to signal they would take time to gauge the economy’s performance.
And the five-week government shutdown also dented economic performance in the first quarter of the year, although most of that is expected to be recovered.
However, Powell cautioned that another shutdown or drawn out trade negotiations with China could hurt the economy by sapping business confidence.
A second shutdown could have “a permanent effect or lasting effect,” he said.
And while the impact of the tariffs Washington and Beijing have imposed on goods so far have not had “material effects on GDP either here or in China.”
However, “a longer drawn out set of negotiations back and forth which could result in sapping business confidence. Uncertainty is not the friend of business.”
Powell late last year repeatedly shook up markets with comments considered to be overly optimistic and hinting at more rate hikes to come.
Facing blowback from his efforts to speak plainly, Powell retreated from his stance and made an effort to stress the uncertainty about the economic outlook and acknowledged that in this case the Fed took note of the “sustained change in financial conditions.”
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