Federal Reserve signals no interest rate hikes in 2019
Sit Fixed Income Senior Vice President Bryce Doty on the impact of the Federal Reserve and U.S. trade talks with China on the markets.
The Federal Reserve voted to keep the benchmark federal funds rate steady during its second policy meeting of the year on Wednesday, also signaling that there will be no hikes for the remainder of 2019.
In a move that was widely expected, policymakers at the U.S. central bank unanimously agreed to leave interest rates unchanged at a target range of 2.25 percent to 2.5 percent in light of global economic and financial developments, as well as muted inflation.
“The Committee will be patient as it determines what future adjustments to the target range for the federal funds rate may be appropriate to support these outcomes,” the Fed said in a statement released following the two-day meeting.
It marks a stark turn from its December meeting three months ago, when Fed Chair Jerome Powell suggested there could be as many as two interest rate hikes this year and one in 2020. Now, policymakers forecast one rate hike in 2020 and none in 2021.
In recent months, Powell and the Fed have appeared to take a more dovish approach to interest rates amid concerns about slowing global growth -- a result of a more than year-long trade war between the U.S. and China and uncertainties about Brexit.
"We still see sustained expansion of economic activity, strong labor conditions and inflation near 2 percent," Powell said during the Fed’s January meeting. "But the crosscurrents suggest a less favorable outlook.”
Although Powell said policymakers still anticipate an overall positive outlook, the Fed lowered its expectation for growth and inflation, while simultaneously increasing its forecast for unemployment, suggesting a weak labor market in the year ahead.
“The Fed may be overreacting to market volatility that occurred in December and distortions to economic activity and data from the government shutdown,” said Tendayi Kapfidze, the chief economist at LendingTree. “While many measures of economic growth have slowed, sentiment data which is more timely has rebounded from those declines.”
Kapfidze suggested there was still the possibility of rate hikes in the year ahead, particularly if growth accelerates and unemployment remains low.
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“Hikes would occur later in the year,” he said, “perhaps starting in September if the economy accelerates over the summer.”
For consumers, the steady interest rate outlook can be both good and bad news, according to Curt Long, the chief economic and vice president of research at the National Association of Federally-Insured Credit Unions.
“It kind of depends on which side of the fence they’re on,” he told FOX Business in February. “If you’re potentially going to be a borrower in the near future, the fact that the Fed seems determined to be patient, in their words, is probably good news. It means rates will probably stay lower than they would have otherwise. On the other hand, if you’re a saver, that might not be as good of news for you.