STANDING PAT
Treasury bill buys to continue through Q1
The Federal Reserve holds interest rates steady at its first policy meeting of 2020.
WASHINGTON: The Federal Reserve held interest rates steady on Wednesday at its first policy meeting of the year, with the head of the US central bank pointing to continued moderate economic growth and a “strong” job market, and giving no sign of any imminent changes in borrowing costs.
“We believe the current stance of monetary policy is appropriate to support sustained economic growth, a strong labor market and inflation returning to our symmetric 2% objective,” Fed chairman Jerome Powell said at a news conference following the central bank’s unanimous decision to maintain the key overnight lending rate in a range of between 1.50% and 1.75%.
He noted signs that global economic growth was stabilising and diminishing uncertainties around trade policy, concern about both of which were key factors in the Fed’s decisions to cut rates three times last year.
But, he added, “uncertainties about the outlook remain, including those posed by the new coronavirus.”
The outbreak of the new flu-like virus in China has led to fears of a further slowdown in the world’s secondlargest economy.
After ticking off a list of positive developments, including the initial trade agreement reached recently by the United States and China and some indication a slip in global manufacturing has hit bottom, Powell noted China’s economy would see at least a shortterm hit from the coronavirus outbreak.
“We are very carefully monitoring the situation,” he told reporters, adding that “while the implications of the outbreak for China’s output are clear, it is too early to determine its global effect or impact on the US economic outlook.’’
The Fed’s statement, calling out solid job gains and low unemployment, was little changed from the one issued after its December meeting.
“The Fed’s going to remain on hold for the foreseeable future, as long as GDP growth and inflation doesn’t move outside of the bands that we’re stuck in, anchored right around 2%,” said Chris Gaffney, president of world markets at TIAA Bank.
The Fed’s statement did not announce any immediate changes to the central bank’s current practice of buying $60 billion monthly of US Treasury bills to ensure adequate short-term liquidity in bank funding markets.
But Powell said the Fed would likely begin scaling back that amount sometime in the April-June period, when the amount of reserves in the banking system would likely be deemed adequate.
After that, purchases would be made and the Fed’s balance sheet expanded as necessary to ensure the level of bank reserves remained “ample,” he said.
In a related decision, the Fed raised the interest it pays banks for excess reserves by five basis points to 1.60%, a technical adjustment officials say is needed to keep the federal funds rate around the middle of the target range.
The interest rate decision was widely expected, with recent economic data showing the economy on track for continued growth, and no sign inflation is rising so fast that it poses a risk the Fed might need to counter with higher borrowing costs to slow the economy.
“The vote was unanimous. That implies that the Fed is going to stay on hold here,” said Peter Cardillo, chief market economist at Spartan Capital Securities in New York. “Of course, they always leave the door open.”