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Fed sees no rate hikes in 2019, sets end to asset runoff

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Fed sees no rate hikes in 2019, sets end to asset runoff

By Howard Schneider and Trevor Hunnicutt

 

2019-03-20T191808Z_1_LYNXNPEF2J1TI_RTROPTP_4_USA-FED.JPG

U.S. Federal Reserve Chairman Jerome Powell holds a news conference following the two-day Federal Open Market Committee (FOMC) policy meeting in Washington, U.S., March 20, 2019. REUTERS/Jonathan Ernst

 

WASHINGTON (Reuters) - The U.S. Federal Reserve on Wednesday brought its three-year drive to tighten monetary policy to an abrupt end, abandoning projections for any interest rate hikes this year amid signs of an economic slowdown, and saying it would halt the steady decline of its balance sheet in September.

 

The measures, announced following the end of a two-day policy meeting, mean the Fed's gradual and sometimes fitful efforts to return monetary policy to a more normal footing will stop well short of what was foreseen in late 2015 when the central bank first moved rates from the near-zero level adopted in response to the 2007-2009 financial crisis and recession.

 

Having downgraded their U.S. growth, unemployment and inflation forecasts, policymakers said the Fed's benchmark overnight interest rate, or fed funds rate, was likely to remain at the current level of between 2.25 percent and 2.50 percent at least through this year, a wholesale shift of their outlook.

 

Rates are now seen peaking at 2.6 percent, sometime in 2020, roughly a percentage point lower than the historic average for the fed funds rate and a sign that the U.S. economy has entered a more sluggish era.

 

In contrast to projections through much of last year, Fed policymakers no longer see the need to move rates to a "restrictive" level as a guard against inflation, which remains lodged below the central bank's 2 percent target.

 

They also said that as of May they would slow their monthly reduction of as much as $50 billion in asset holdings, and halt them altogether in September, ending what amounted to a second lever of monetary tightening that had run in the background since late 2017.

 

(GRAPHIC: Federal Reserve bond holdings since the financial crisis - 2HDf8BV)

 

In terms of interest rates, the new Fed projections knocked the number of hikes expected this year to zero from the two forecast in December, completing a pivot to a less aggressive policy in the face of an apparent jump in economic risks. At least nine of the Fed's 17 policymakers reduced their outlook for the fed funds rate, a comparatively large number.

 

"It may be some time before the outlook for jobs and inflation calls clearly for a change in policy ," Fed Chairman Jerome Powell said in a press conference following the policy meeting, at which policymakers reaffirmed they will be "patient" before moving rates again.

 

"Patient means that we see no need to rush to judgment," Powell said.

 

Continued growth and a healthy jobs market remains "the most likely" scenario for the U.S. economy, the Fed's rate-setting committee said in a policy statement on Wednesday.

 

But doubts have accumulated, with a slowdown in household spending and business investment at the start of this year possibly signaling an early end to a growth spurt triggered in 2018 by a massive tax cut package and government spending.

 

The economic projections released on Wednesday showed policymakers at the median see the U.S. economy growing only 2.1 percent in 2019, a full percentage point below the roughly 3 percent growth that was seen in 2018 and which the Trump administration contends will continue.

 

'MORE DOVISH'

The new rate view brings the Fed in line with investors who have argued the central bank would not raise rates this year.

 

"I didn't think they'd do it, but they came across as more dovish than what was expected," said Brian Jacobsen, senior investment strategist for Wells Fargo Asset Management.

 

The outlook is now also in line with President Donald Trump's criticism of Fed rate hikes as endangering the recovery, though for the awkward reason that Fed officials do not see his policies having a lasting impact on growth.

 

Fed funds futures contracts began pricing in a better-than-even chance of a rate cut by next year after the release of the policy statement and projections.

 

Powell pushed back on that view, saying the U.S. economy is in a "good place" and that the outlook is "positive."

 

Still, he said, there are ongoing risks, including those related to Britain's exit from the European Union, U.S. trade talks with China, and even the outlook for the U.S. economy, which he said the Fed is watching closely.

 

"The data are not currently sending a signal that we need to move in one direction or another, in my view," he said. "It's a great time for us to be patient."

 

Benchmark U.S. stock market indexes swung higher after the Fed's statement was released before giving up the gains later in the trading session, and key Treasury security yields dropped to the lowest levels since early January. The dollar weakened broadly against major trading partners' currencies.

 

"The Fed exceeded markets' dovish expectations, which took a toll on the greenback," said Joe Manimbo, senior market analyst at Western Union Business Solutions in Washington. "The Fed did a big about-face on policy. The fact that the Fed threw in the towel on a 2019 rate hike was particularly dovish."

 

The new economic projections showed weakening on all fronts compared to the Fed's forecasts from December. In addition to the growth slowdown, the unemployment rate for 2019 is forecast at 3.7 percent, slightly higher than forecast three months ago.

 

Inflation for the year is now seen at 1.8 percent, compared to the December forecast of 1.9 percent.

 

"Growth of economic activity has slowed from its solid rate in the fourth quarter," the Fed said. "Recent indicators point to slower growth of household spending and business fixed investment in the first quarter ... overall inflation has declined."

 

(Reporting by Howard Schneider and Trevor Hunnicutt; Writing by Howard Schneider and Ann Saphir; Editing by Dan Burns and Paul Simao)

 

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-- © Copyright Reuters 2019-03-21

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WOW! They've gone from hawkish to dovish in just a few months. So if the stock market tanks, can we expect them to start cutting rates again or launch QE4? Have they lost control?

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Donald is toast probably a goin to prison but I do hope the rates stay low I’m closing on another property in a few days

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12 minutes ago, Tug said:

Donald is toast probably a goin to prison but I do hope the rates stay low I’m closing on another property in a few days

Where will you be when that happens? 

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1 hour ago, Topdoc said:

WOW! They've gone from hawkish to dovish in just a few months. So if the stock market tanks, can we expect them to start cutting rates again or launch QE4? Have they lost control?

They haven't been hawkish in years. Moving from free money to 2% could hardly be considered hawkish. What they are is sheepish.

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46 minutes ago, Cryingdick said:

Where will you be when that happens? 

Non of your business lol 

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4 hours ago, Cryingdick said:

Nice. Keep the economy and market going to keep away from the people that want a war on Wall Street that can't be won. If the economy holds trump wins it isn't even close.

The new economic projections showed weakening on all fronts compared to the Fed's forecasts from December.”

 

Doh!

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15 hours ago, lannarebirth said:

They haven't been hawkish in years. Moving from free money to 2% could hardly be considered hawkish. What they are is sheepish.

Funny how the same people who have a horror of deficits also want the government to offer lenders a higher rate than it has to.

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13 hours ago, Chomper Higgot said:

The new economic projections showed weakening on all fronts compared to the Fed's forecasts from December.”

 

Doh!

the NEP need some UK bulldog brexiteer confidence,all will be well,its a piece of cake,everyone else is doomed,they need us more,we won 2 wars,sovereignty,less immigrants,freedom,NHS,WTO,trade deals,palastine and the faroes,shit currency will boost exports,innovation,green energy,pride,short term pain long term gain, when will the US start to learn from their former masters?

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40 minutes ago, bristolboy said:

Funny how the same people who have a horror of deficits also want the government to offer lenders a higher rate than it has to.

Or maybe they could borrow less?

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7 minutes ago, lannarebirth said:

Or maybe they could borrow less?

Which would tend to lower interest rates even more. Unless you think that the government should pay lenders higher interest rates than it has to.

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21 hours ago, Cryingdick said:

Where will you be when that happens? 

Where will you be when that happens?  If you can understand just a tiny bit of this thread, it indicates that US economy  is on the near brink of a severe downturn.   And a lot of it, not all, will be silly Trump inspired economics.  Instead of being a cannon fodder supporter of the  Republicans,  you should try to understand just a bit of financial and social economics.

Maybe too much for you but the need to be more intelligent in this endeavour is beyond the incumbent.

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6 hours ago, Prissana Pescud said:

Where will you be when that happens?  If you can understand just a tiny bit of this thread, it indicates that US economy  is on the near brink of a severe downturn.   And a lot of it, not all, will be silly Trump inspired economics.  Instead of being a cannon fodder supporter of the  Republicans,  you should try to understand just a bit of financial and social economics.

Maybe too much for you but the need to be more intelligent in this endeavour is beyond the incumbent.

 

The fed is being dovish to keep the markets soaring and make sure the dems can not win. If you digest all of the figures the financial outlook isn't bad. Money will be made until late 2020. Guess what happens in late 2020? 

 

Trump wins again. 

 

The next election will be based upon 401K plans and seniors afraid of SS collapsing. If the economy is good the dems do not have any chance whatsoever. This latest announcement by the fed is the all is clear signal to the markets which are above the 200 day moving averages and broke critical resistance levels again today. 

 

I don't think you truly understand what is going on. The only deal left that needs to be done to keep the economy going is infrastructure. This is why the dems won't support any deal on it. They know if they dump a few billion into infrastructure right now it will ensure the economy is good until next election. That spells catastrophe for the dems. 

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21 hours ago, Cryingdick said:

 

The fed is being dovish to keep the markets soaring and make sure the dems can not win. If you digest all of the figures the financial outlook isn't bad. Money will be made until late 2020. Guess what happens in late 2020? 

 

Trump wins again. 

 

The next election will be based upon 401K plans and seniors afraid of SS collapsing. If the economy is good the dems do not have any chance whatsoever. This latest announcement by the fed is the all is clear signal to the markets which are above the 200 day moving averages and broke critical resistance levels again today. 

 

I don't think you truly understand what is going on. The only deal left that needs to be done to keep the economy going is infrastructure. This is why the dems won't support any deal on it. They know if they dump a few billion into infrastructure right now it will ensure the economy is good until next election. That spells catastrophe for the dems. 

What you have quoted is an isolation policy. If US exits the world economy, I am sure US can exist. You are a big rich economic country.

But no one in the broader economy will want to buy your suddenly expensive goods and produce. Because you live in isolation.

I live in Thailand and no one buys US goods any more. I suspect all Asia will follow Thailand.

And you blather on about dems and reps, don't you realise that your country in now outside all the friends it once had.

And your corrupt leader is the reason why former allies are quitting US because we no longer want anything to do with you.

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