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20.06.2019

Federal Reserve Keeps Rates Steady, but Opens Door to Easing

The Federal Reserve kept interest rates unchanged Wednesday, but signaled it was prepared to lean toward a more dovish stance as uncertainties in its growth outlook have increased.

The Federal Open Market Committee kept the fed funds rate in a range of 2.25% to 2.5%..

In a sign that the Fed is laying the groundwork for more accommodative policies, the central bank ditched "patient" from its policy language and said it would "act as appropriate to sustain the expansion."

"The Committee continues to view sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee's symmetric 2 percent objective as the most likely outcomes, but uncertainties about this outlook have increased," the Fed said.

At his press conference, Federal Reserve Chairman Jerome Powell conceded there were some significant changes to the Fed's policy statement, but suggested that the central bank was in no rush to cut rates.

"I don't think the risk of waiting too long (to cut rates) is prominent right now," Powell said.

Members of the rate-setting committee kept their 2019 median forecast for interest rates at 2.4%. But the interest rate outlook for both 2020 and 2021 was lowered, guiding to at least one rate cut next year.

The longer-run interest rate was cut to 2.5% from 2.8%.

For decades the Federal Reserve has operated under a dual mandate seeking to achieve maximum employment while ensuring inflation remains steady. But inflation continues to elude the Fed's 2% target, giving the central bank reason to tilt dovish.

The economy is expected to grow by 2.1% in 2019, unchanged from previous estimate of 2.1% , and by 1.9% in 2020, down from 1.9% previously, the Fed's Summary of Economic Projections showed.

The pace of inflation, which has longed lagged the Fed's 2% target, is forecast to cool to a rate of 1.5% this year, down from 1.8%. Core PCE inflation for 2020 was also revised lower to 1.9% from 2.0%.

The most recent measure of core PCE, the Fed's preferred measure of inflation, stood at 1.6%.

"The fact core inflation is underperforming the target is suddenly a big problem and only massive easing might do something about proving the 2% goal to be a symmetrical target," Scotiabank said in a note.

The unemployment rate, which remains at multi-year lows, was revised downward for 2019 to 3.6% from 3.7% previously.

Source: Investing.com
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