Fed holds rates steady
Powell suggests no more increases likely this year
WASHINGTON - Citing a more modest outlook for the economy, the Federal Reserve on Wednesday held interest rates steady and signaled it did not plan to raise rates at all this year and would bump them up just once in 2020, providing a road map for a sustained period of easy-money policy.
“The U.S. economy is in a good place,” Fed Chairman Jerome Powell said at a news conference, adding policymakers foresee “a modest slowdown, with overall conditions remaining favorable. We see no need to rush to judgment (by lifting or cutting rates).”
The move comes after the central bank repeatedly has telegraphed its plan to scale back rate hikes in 2019 in the face of a U.S. and global economic slowdown, and markets that have shown no tolerance for higher borrowing costs in that environment.
But a two-day meeting that concluded Wednesday provided the Fed its first opportunity to trim its fairly upbeat December forecasts for the economy and rates.
As expected, the Fed kept its key short-term rate at a range of 2.25 percent to 2.5 percent. After holding rates near zero for years after the Great Recession ended in 2009, the central bank has lifted rates nine times since late 2015, including four times last year, as the economy has strengthened. The increases have bumped up rates on credit cards, mortgages and auto loans while providing higher rates on banks savings accounts after years of paltry returns.
Yet those rates are now expected to remain fairly stable through next year, if the economy cools, as Fed policymakers expect.
In December, after the Fed downgraded its forecast from three hikes to two in 2019, markets sold off on the belief that blueprint was still too aggressive amid slowing growth in Europe and China, the U.S. trade war with China, and the fading effects of federal tax cuts and spending increases.
With plunging stocks hammering consumer and business confidence and inflation subdued, Fed Chairman Jerome Powell and other policymakers made an abrupt turnabout, saying the Fed will be “patient” as it weighs future hikes. The broad stock market in turn, has rallied, though it remains below its late September peak.
Following the Fed announcement on Wednesday, the Dow Jones industrial average fell 141.71 points, or 0.6 percent, to end at 25,745.67.
The Fed cut its forecast from two hikes this year to none. It expects one hike in 2020. Policymakers estimate the benchmark rate will remain at 2.4 percent at the end of 2019 and rise to 2.6 percent in 2020, down from 2.9 percent and 3.1 percent, respectively, in their December estimate.
Before Wednesday’s release, Fed fund futures markets were predicting no hikes this year, according to CME.
Since October 2017, the Fed gradually had been shedding the $3.5 trillion in Treasury bonds and mortgagebacked securities it purchased after the financial crisis to lower long-term rates and spur growth. As a result, the Fed’s total asset portfolio has fallen to $3.9 trillion from a peak of $4.5 trillion.