By Greg Robb, MarketWatch
Reuters Enlarge Image
The Federal Reserve on Wednesday offered a more upbeat view on the economy and indicated it doesn’t expect to raise interest rates again for at least another year.
The Fed voted unanimously to leave its benchmark rate in a range of 1.5% and 1.75% at the end of its final policy meeting in Washington this year. It was the first vote without a dissent in five meetings.
The central bank also signaled it will leave rates unchanged through the end of 2020. In a press conference afterward, Chairman Jerome Powell said he’d need to see a sustained increase in inflation before raising the cost of borrowing.
“Powell was very explicit in guiding that only a ‘persistent, significant’ rise in inflation would lead him to support hikes,” economist Andrew Hollenhorst of Citibank said in a note to clients.
The Fed had cut U.S. interest rates in three successive meetings starting in July to shield the economy from a disruptive trade war with China that’s reduced business investment, harmed exports and sent the manufacturing sector into contraction.
Senior Fed officials believe the series of rate cuts has helped stabilize the economy and lower the odds of recession. They left out a mention about ongoing “uncertainties,” for instance, that was included in their statement in October.
The Fed on Wednesday said “the current stance of monetary policy is appropriate” to sustain an economic expansion, strong labor markets and inflation near its 2% target.
“Policy is somewhat accommodative,” Powell said in the press conference.
Looking ahead, the Fed’s dot-plot of interest rates forecasts by officials showed no changes next year and only one hike in 2021. Only four of 17 officials think rates might rise next year.
The view in financial markets is not quite as sanguine. Investors believe the Fed will cut rates once over the course of next year, according to CME Group. Analysts said it’s a signal investors still have lingering worries about the economy.
The Fed’s statement and its economic forecasts show the central bank is more upbeat.
The Fed lowered its forecast for the unemployment rate in 2020 to 3.5% from 3.7%, but inflation is still expected to remain a tick below 2% for the full year.
The bank also predicted gross domestic product — how fast the economy is growing — will expand at or slightly below a 2% annual pace for the next three years. That’s roughly how fast the U.S. has been growing since it exited the Great Recession more than 10 years ago.
Jan Hatzius, chief economist at Goldman Sachs, said the Fed’s three rate cuts deserve a lot of credit. The Fed’s dramatic shift from planning at the start of 2019 to hike rates to eventually cutting three times has eased financial conditions and bolstered the outlook for the economy.
What could give the economy another boost is a dialing down in U.S.-China trade tensions after a flurry of tit-for-tat tariffs that came to a crescendo over the summer. The two countries are trying to finish the first phase of what they hope is a broader agreement that resolves longstanding trade disputes between the world’s two largest economies.
A Dec. 15th deadline for new tariffs on imports from China still has not been delayed, however, and a trade truce has still not been secured.
Stocks /zigman2/quotes/210598065/realtime DJIA +0.66% /zigman2/quotes/210599714/realtime SPX +1.01% rose slightly after the Fed decision. Yields on the benchmark 10-year Treasury /zigman2/quotes/211347051/realtime BX:TMUBMUSD10Y -1.82% slipped to 1.80%.