Fed to hold fire as economy ends year on a high

WASHINGTON: With the strength of the world’s largest economy on display at year end, the US Federal Reserve is all but certain to leave interest rates untouched at its final policy meeting of 2019 this week.

While Latin America and Europe are stagnant and China has begun to sputter worryingly, November’s blockbuster US employment report – which blew past economists’ expectations – underscored the resilience of American labour markets despite headwinds from President Donald Trump’s grinding trade war and signs of slower consumer spending.

In that context, the Fed may feel it can take a bow for piloting a Goldilocks economy: one that is just right.

The signs of resilience validate the Fed’s decision in October to pause policy after three cuts in the benchmark lending rate this year. Policymakers can now wait to see how the economy performs early in the new year.

The rate-setting Federal Open Market Committee will release its decision on Wednesday afternoon, along with an updated quarterly economic forecast.

Since the last meeting in October, Fed members have made clear that monetary policy is a in “good place”. However a “material change” in their outlook could cause them to move again.

“At this point in the long expansion, I see the glass as much more than half full,” Fed chairman Jerome Powell said in a November speech.

Consumer spending and confidence are strong. The housing market has picked up. Unemployment is still very low as hiring continues. Gross domestic product growth slowed in the third quarter but was still better than feared.

Futures markets as of Friday predicted the Fed would leave rates untouched until at least September of next year, when another cut could occur.

The odds of an economic recession within the next 12 months, according to the New York Federal Bank. have also begun to decline (though they are still pretty high at about one in three).

The outlook could change dramatically depending on what happens to the trade conflict with China. If Washington and Beijing manage to seal a partial trade deal and at least cease hostilities, an end to uncertainty could give businesses a sharp boost. – AFP