Fed keeps rates on hold, points to ‘favorable’ economic outlook next year

The U.S. Federal Reserve held interest rates steady and signaled borrowing costs will not change anytime soon, with moderate economic growth and historically low unemployment expected to persist through the 2020 presidential election.

In its final policy meeting of a tumultuous year, when it was spurred to cut interest rates three times to forestall a slowdown fueled largely by President Donald Trump’s trade war, the U.S. central bank struck a remarkably sanguine tone, confident the actions it had taken so far are working.

“Our economic outlook remains a favorable one, despite global developments and ongoing risks,” Fed Chair Jerome Powell said in a news conference shortly after the release of the latest policy statement and new quarterly economic projections.

“As the year progressed we adjusted the stance of monetary policy to cushion the economy and provide some insurance … This shift has helped support the economy and has kept the outlook on track,” he said.

The policy decision left the Fed’s benchmark overnight lending rate in its current target range between 1.50% and 1.75%, three-quarters of a percentage point below where it started the year.

And after broad disagreement earlier over the direction of policy and dissents at its last four rate-setting meetings, the Fed ended the year on the same page. The vote on its latest policy statement was unanimous, and the new economic projections showed 13 of 17 Fed policymakers foresee no change in interest rates until at least 2021.

The other four saw only one rate hike next year.

Notably, no policymakers suggested lower rates would be appropriate in coming months.

Combined, it’s evidence of a central bank in which the most “dovish” members feel the current low level of interest rates will allow job and wage gains to continue, while the most “hawkish” feel inflation will remain contained – a soft landing for both sides after a year in which recession risks rose, the U.S. bond yield curve inverted, and trade policy disrupted markets.

Powell, who at the start of his news conference read a brief tribute to the late Paul Volcker, the Fed’s inflation-fighting former chairman, said the central bank now sees the connection between low unemployment and inflation as “very faint.”

source: Reuters