US Fed keeps interest rate unchanged, says will be ‘patient’

Watch the Fed's Press Conference Wednesday

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Even in a continued positive economic environment, the Fed could refrain from further interest rate hikes as long as there are no clear signs of a rise in inflation. This has now gone by the board.

"But we would place far more emphasis on our forecast for a sharp slowdown in economic growth further ahead, which we expect will force the Fed to cut rates by 75bp in 2020", he said in a report after Powell's press conference. Investing, trading and speculation in any financial markets may involve high risk of loss. The Dow Jones Industrial Average, which had already been up strongly, surged about 200 points once the Fed statement was released and was up about 460 points almost an hour later.

Not surprisingly, Wall Street liked what it heard. "There's everything for the doves today".

In support of the goals to foster maximum employment and price stability, the Federal Open Market Committee chose to maintain the target range for the federal funds rate at 2.25 per cent to 2.5 per cent, the central bank said in a statement after concluding a two-day policy meeting, Xinhua reported. The Fed expected inflation would remain around its 2 percent goal and the economy would grow at a "solid pace" during 2019, though less than last year's "very strong pace".

Powell also said that financial conditions - stock prices and borrowing rates, for example - had become less friendly to growth. There are a number of indicators suggesting the economy is starting to slow down, particularly the housing market. Last December, the Fed issued a projection that it expected to raise rates 2X in Y 2019, down from its previous projection of 3X.

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Early in its tenure, the Powell-led Fed sought to convey to markets a heightened focus on the further normalisation of monetary policy, as it sought to build policy flexibility in the event of a future downturn and to lower the risk of future market instability.

In this environment, we believe we can best support the economy by being patient in evaluating the outlook before making any future adjustment to policy. These were accumulated under the "quantitative easing" policy, when the central bank was a major purchaser of bonds.

"What Apple is showing us is that when expectations have already come down and aren't getting any worse, then the markets have room to bounce", said Tom Plumb, Chief Investment Officer at Plumb Funds in Madison, Wisconsin.

In a separate statement, the Fed also said that it would continue to normalize its balance sheet, but was prepared to alter details of the program "in light of economic and financial developments". Powell had initially signalled that the Fed's balance sheet of $4.1 trillion could be lowered to less than $3 trillion.

The Fed's decision was approved on a 10-0 vote.

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The Fed began gradually shrinking its mortgage-backed securities and treasuries portfolio in October 2017 by allowing securities to mature without reinvesting the proceeds.

Powell denounced any idea the Fed was caving to political pressure by taking a more dovish approach.

"There is still a lot to worry about outside the United States with growth in Europe and China slowing".

The "decision will reinforce expectations that the Fed is nearly done raising interest rates", Michael Pearce, senior US economist, Capital Economics, said in a research note.

Sterling, which is grappling with troubles of its own on uncertainty over the prospect of a chaotic British exit from the European Union, was up 0.1 percent at $1.3127.

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