Citing a still-growing economy, the Fed leaves interest rates unchanged and expects no rate hikes in 2020.
The Federal Open Market Committee (FOMC) met market expectations by holding the benchmark federal funds rate steady, with Federal Reserve Chair Jerome Powell stating the Fed’s current policy “is appropriate to address global developments and muted inflation pressures.” He also indicated the Fed’s stance could change if economic developments “cause a material reassessment of their outlook.” Still, the committee indicated that monetary policy is likely to remain unchanged for an unspecified time. The decision to keep rates unchanged was unanimous, a departure from dissents in recent meetings. Equities moved slightly higher during Chair Powell’s press conference, signaling initial approval of the Fed’s view that no rate changes will be needed until at least 2021. The benign forecast also helped reinforce the Fed’s 2% inflation threshold for future rate increases. The 10-year U.S. Treasury yield was higher by 9 basis points the day after the Fed’s announcement. In contrast, the 10-year Treasury note fell to 1.80% on the news. Below are changes in the Fed’s statement from October to December:
The Fed Dot Plot Chart showed four Fed forecasters projecting one hike for 2020. The median projections saw the federal funds rate in 2020 remain at the 1.50-1.75% range and at the 1.75-2.00% range in 2021 (lower than predicted in September).
There wasn’t much drama leading to the Fed’s decision to leave interest rates unchanged, especially with recent economic data showing resiliency in the labor market and consumer spending, coupled with a marginal and unexpected rally in the manufacturing sector. We believe the Fed continues to act prudently and with transparency to the markets. The committee’s unanimous view of holding rates would indicate the near-term outlook for rates to be steady (barring an adverse event). This stance may reduce uncertainty, resulting in increased economic growth.
One basis point is equal to 0.01%.
Core personal consumption expenditures (PCE) price index measures the prices consumers pay for goods and services without the volatility caused by energy and food prices.
*Bloomberg Finance L.P., 10/30/19