Fed Says It Won’t Hike Rates in 2019, Citing Economic Slowdown

Muriel Colon
March 22, 2019

The Federal Reserve concluded its two-day meeting of the Federal Open Market Committee, its monetary policy arm, on Wednesday by announcing that it would leave rates unchanged. Most analysts say that a growth rebound in Europe that draws a European Central Bank interest rate hike could send the Dollar into a lengthy decline.

Central bankers also cut their median forecast for economic growth this year to 2.1 percent, from 2.3 percent in December.

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 US economy has entered a more sluggish era.

Citigroup Inc plans to sell several tons of gold placed as collateral by Venezuela's central bank on a $1.6 billion loan after the deadline for repurchasing them expired this month, sources said, a setback for President Nicolas Maduro's efforts to hold onto the country's fast-shrinking reserves.

Oil prices fell after touching their highest in 2019.

So it's no surprise stocks finished Wednesday with a downward bias following Federal Reserve Chairman Jerome Powell's well-polished presentation to headline-seeking journalists Wednesday afternoon.

"The economy is in a good place", Chairman Powell said, "economic fundamentals remain strong and our outlook is positive".

The Federal Reserve is becoming more anxious about the US economy, citing slower consumer and business spending. Immediately after the announcement, stocks surged, more than erasing earlier losses, and the yield on the 10-year bond fell to 2.53 percent.

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.

Growth in Europe and China has weakened and there are conflicting signs about how the USA economy is doing. The 10-year Treasury yield dove to its lowest level since January 2018 as the market baked in a prolonged period of meh USA growth.

The Fed also said that is will slow the monthly reduction of US Treasury bonds it holds from $30bn to $15bn from May onwards ending in September.

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 focus shifted back to Brexit and the potential downside that a "no deal" would create", said Minh Trang, senior currency trader at California's Silicon Valley Bank. "Whatever happens, the Fed has now signalled a policy of patience".

Markets expect the Fed to strike a dovish tone when it meets this week, and bets on an interest rate cut have increased after weaker-than-expected manufacturing data on Friday.

The Fed is getting just a little more wary about economic prospects.

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

As a result, the US dollar may face a more bearish fate over the near-term as the Fed responds to the weakening outlook for growth, with EUR/USD at risk of extending the rebound following the European Central Bank (ECB) meeting as the exchange rate clears the monthly opening range and breaks out of the downward trend from earlier this year.

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