Fed seems content to leave rates alone, but challenges exist
For the first time in years, Federal Reserve officials will hold their latest policy meeting this week feeling broadly satisfied with where interest rates are and with seemingly no inclination to change them anytime soon.
Chairman Jerome Powell has expressed a sense of gratification with Fed policy, thanks to a steady if unspectacular economy driven by a robust job market.
The unemployment rate is at a 50-year low. Economic growth remains solid if modest at a roughly 2% annual rate. With inflation low, the Fed could potentially stand pat for months.
Yet even with the Fed seemingly comfortable with the range of its benchmark rate — a historically low 1.5% to 1.75% — questions about its policy-making remain. They include what the next steps might be for the Fed’s ongoing purchases of short-term Treasury bills, which are intended to keep overnight lending markets free-flowing and to hold down shortterm borrowing rates. Officials will also likely spend time at their TuesdayWednesday meeting discussing their ongoing review of how the Fed should adapt its policies for a persistently low-inflation, lowinterest rate environment.
There is also continued uncertainty about the global economy, concern about high levels of corporate debt and potential risks to the financial markets from consistently ultra-low rates
Last year, the Fed cut its benchmark interest rate three times after raising it four times in 2018. Powell and other Fed officials credit the cuts with revitalizing the housing market, which had stumbled early last year, and offsetting some of the drag from President Donald Trump’s trade war with China.
Among other benefits, the rate cuts have helped drive down mortgage rates and led home buyers to bid up prices on a dwindling number of available properties. Home sales jumped in December and were nearly 11% higher than a year earlier. Since they last met in December, Fed officials have presented a nearly unified front in support of keeping rates unchanged, possibly for the rest of this year. That contrasts with last year, when “hawks,” who tend to favor higher rates, and “doves,” who typically lean toward lower rates, occasionally dissented from the Fed’s rate decisions.