Fed reports no interest rate changes in 2020 in more optimistic view of economy

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The Federal Reserve offered a more optimistic view of the economy on Wednesday and said it does not expect to raise interest rates again for at least a year.

The Fed voted unanimously to leave its key rate in the 1.5% and 1.75% range after its last policy meeting in Washington this year. It was the first vote without dissent in five meetings.

The central bank also said it would leave rates unchanged until the end of 2020. In a subsequent press conference, President Jerome Powell said he would need a sustained hike in l inflation before increasing the cost of borrowing.

“Powell has been very explicit in indicating that only a ‘persistent and significant’ rise in inflation will lead him to support the increases,” Citibank economist Andrew Hollenhorst said in a note to clients.

The Fed had cut US interest rates in three successive meetings starting in July to shield the economy from a disruptive trade war with China that cut business investment, hurt exports and caused the sector to contract. manufacturer.

Senior Fed officials believe the series of rate cuts have helped stabilize the economy and reduce the risk of a recession. They omitted a reference to ongoing “uncertainties”, for example, which was included in their statement in October.

The Fed said Wednesday that “the current stance of monetary policy is appropriate” to support economic expansion, strong labor markets and inflation close to its 2% target.

Read the December Fed statement

“The policy is somewhat accommodating,” Powell said at the press conference.

Looking ahead, the dot-plot of the Fed’s interest rate forecast by officials showed no change next year and only one hike in 2021. Only four of 17 officials believe rates could rise next year.

The opinion of the financial markets is not so optimistic. Investors believe the Fed will cut rates once in the next year, according to CME Group. Analysts said it was a signal that investors still had lingering concerns about the economy.

The Fed’s statement and its economic forecast show that the central bank is more bullish.

The Fed lowered its unemployment rate forecast for 2020 to 3.5% from 3.7%, but inflation is still expected to remain below 2% for the full year.

The bank also predicted that gross domestic product – the speed of growth of the economy – would increase at an annual rate of 2% or slightly below over the next three years. That’s about the rate the United States has grown since it emerged from the Great Recession over 10 years ago.

Jan Hatzius, chief economist at Goldman Sachs, said the Fed’s three rate cuts deserve a lot of credit. The Fed’s drastic shift from planning in early 2019 to hike rates and ultimately cut three times has eased financial conditions and strengthened the outlook for the economy.

What could give the economy new impetus is a decrease in trade tensions between the United States and China after a wave of tariffs that reached a crescendo over the summer. The two countries are trying to complete the first phase of what they hope will be a broader deal that resolves long-standing trade disputes between the world’s two largest economies.

However, the December 15 deadline for new tariffs on imports from China has still not been delayed and a trade truce has still not been obtained.

DJIA actions,
-0.09%

SPX,
+ 0.42%
slightly increased after the Fed’s decision. Returns on the benchmark 10-year Treasury index TMUBMUSD10Y,
1.551%
slipped to 1.80%.

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