Please ensure Javascript is enabled for purposes of website accessibility
Fed Signals Neither a Rate Hike nor a Cut Is Likely Soon
gvw_ap_news
By Associated Press
Published 5 years ago on
May 1, 2019

Share

WASHINGTON — The Federal Reserve left its key interest rate unchanged Wednesday and signaled that it’s unlikely to either raise or cut rates in coming months amid signs of renewed economic health but unusually low inflation.

The Fed left its benchmark rate — which influences many consumer and business loans — in a range of 2.25% to 2.5%. Its low-rate policy has helped boost stock prices and supported a steadily growing economy.

“The committee is comfortable with our current policy stance.” — Chairman Jerome Powell

A statement from the Fed spotlighted its continuing failure so far to lift annual inflation to at least its 2% target rate. The Fed’s preferred 12-month inflation barometer is running at about 1.5%. In pointing to persistently low inflation, the statement might have raised expectations that the Fed’s next rate change, whenever it happens, could be a rate cut. The Fed cuts rates when it’s trying to stimulate inflation or growth.

But at a news conference later, Chairman Jerome Powell declined to hint of any potential coming rate cut. He suggested that the current too-low inflation readings may be transitory or might not be fully capturing real-world price increases.

“The committee is comfortable with our current policy stance,” Powell said.

His comments appeared to deflate a modest stock market rally that occurred after the Fed issued its statement, with its mention of unusually low inflation.

Fed Expresses More Upbeat View of  Economy

The Fed also made a technical adjustment Wednesday to reduce the interest it pays banks on reserves as a way to keep its benchmark rate inside its approved range, rather than at the upper end of that range.

The central bank’s decision to make no change in its rate policy — approved on a 10-0 vote — had been expected despite renewed pressure from President Donald Trump for the Fed to cut rates aggressively to help accelerate economic growth.

The Fed expressed a more upbeat view of the economy, saying “economic activity rose at a solid rate.” In March, the Fed had said it appeared that growth had slowed from the fourth quarter of last year.

The generally brighter outlook for the economy and the stock market represents a sharp rebound from the final months of 2018, when concerns about a possible global recession and fear of further Fed rate increases had darkened the economic picture. Stock prices tumbled late last year, especially after the Fed in December not only raised rates for the fourth time in 2018 but suggested that it was likely to keep tightening credit this year.

Yet starting in January, the Fed engineered an abrupt reversal, suggesting that it was finished raising rates for now and might even act this year to support rather than restrain the economy. Its watchword became “patient.” And investors have responded by delivering a major stock market rally.

The market gains have also been fed by improved growth prospects in China and some other major economies and by the view that a trade war between the world’s two biggest economies, the United States and China, is nearing a resolution.

Investors See No Probability of Rate Hike This Year

Last week, the government reported that the U.S. economy grew at a surprisingly strong 3.2% annual rate in the January-March quarter. It was the best performance for a first quarter in four years, and it far surpassed initial forecasts that annual growth could be as weak as 1% at the start of the year.

Indeed, for all of 2019, growth is expected to total around 2.2%, down from last year’s 2.7% gain, as the effects of the 2017 tax cuts and billions of dollars in increased government spending fade.

If economic prospects were to brighten further, could Fed officials rethink their plans to suspend further rate hikes and perhaps resume tightening credit?

Possibly. But investors don’t seem to think so. According to data tracked by the CME Group, investors foresee zero probability that the Fed will raise rates anytime this year. And in fact, their bets indicate a roughly 64% likelihood that the Fed will cut rates before year’s end.

One factor in that dovish view is that the economy might not be quite as robust as the latest economic figures suggest. The first quarter’s healthy 3.2% annual growth rate was pumped up by some temporary factors — from a surge in restocking of companies’ inventories to a narrowing of the U.S. trade deficit — that are expected to reverse themselves. If so, this would diminish the pace of growth and likely hold down inflation.

Indeed, for all of 2019, growth is expected to total around 2.2%, down from last year’s 2.7% gain, as the effects of the 2017 tax cuts and billions of dollars in increased government spending fade.

Trump Presses Fed to Cut Rates

At the same time, the Fed is still struggling to achieve one of its mandates: To produce inflation of roughly 2%. This week, the government reported that the Fed’s preferred inflation gauge rose just 1.5% in March from 12 months earlier. Many analysts say they think the Fed won’t resume raising rates until inflation hits or exceeds its 2% target.

Too-low inflation is seen as an obstacle because it tends to depress consumer spending, the economy’s main fuel, as people delay purchases in anticipation of flat or even lower prices. It also raise the inflation-adjusted cost of a loan.

In the meantime, President Donald Trump has attacked Powell’s leadership as being too restrictive toward rates and has pressed the Fed to cut rates — something few mainstream economists favor.

On Tuesday, Trump tweeted that the U.S. economy has “the potential to go up like a rocket” if the Fed would only slash rates and resume the emergency bond buying programs it unveiled after the Great Recession to ease long-term loan rates to stimulate spending and growth.

Powell has so far stuck to his long-standing position that the Fed will keep pursuing its goals of maximum employment and stable inflation without regard to outside influence.

DON'T MISS

Trump Criticizes Judge and His Daughter After Gag Order in Hush-Money Case

DON'T MISS

Police Had About 90 Seconds to Stop Traffic Before Baltimore Bridge Fell. 6 Workers Are Feared Dead

DON'T MISS

NBC Has Cut Ties With Former RNC Head Ronna McDaniel After Employee Objections, Some on the Air

DON'T MISS

Chinese Leader Xi Issues a Positive Message to US Business Leaders as Ties Improve

DON'T MISS

Cargo Ship Lost Power, Issued Mayday Before Hitting Baltimore’s Bridge

DON'T MISS

Trump’s Social Media Company Soars Nearly 50% in Its First Day of Trading on Nasdaq

DON'T MISS

Supreme Court Appears Likely to Preserve Access to Abortion Medication Mifepristone

DON'T MISS

Court Agrees to Pause Trump’s Civil Fraud Judgment if He Puts up $175M

DON'T MISS

Fresno Police Nab Suspect in March 14 Slaying on Bulldog Lane

DON'T MISS

This Kitty Checks All the Boxes: ‘Happy, Playful, Loves to Eat’

No data was found

Trump Criticizes Judge and His Daughter After Gag Order in Hush-Money Case

11 hours ago

CA Insurance Market ‘in Chaos,’ Says Former Insurance Commissioner. Can Lara Fix It?

12 hours ago

Stock Market Today: S&P 500 Sets a Record After Wall Streets Breaks Out of Its Lull

12 hours ago

House Speaker Mike Johnson Headed to Fresno on April 4

12 hours ago

Bredefeld, Smittcamp Debate the Salary of Valley Children’s CEO

12 hours ago

CA’s Liberal Government Has a Long History of Caving to Special Interests

13 hours ago

Corrupt Process? Bullard, Edison Parents Blast Handling of Superintendent Search

13 hours ago

Police Had About 90 Seconds to Stop Traffic Before Baltimore Bridge Fell. 6 Workers Are Feared Dead

14 hours ago

NBC Has Cut Ties With Former RNC Head Ronna McDaniel After Employee Objections, Some on the Air

14 hours ago

Here Are Some Numbers That Will Help You Get Your March Madness Fix for the Sweet 16

14 hours ago

Ukrainian Navy Says a Third of Russian Warships in the Black Sea Have Been Destroyed or Disabled

KYIV, Ukraine — Ukraine has sunk or disabled a third of all Russian warships in the Black Sea in just over two years of war, the navy spokes...

5 hours ago

5 hours ago

Ukrainian Navy Says a Third of Russian Warships in the Black Sea Have Been Destroyed or Disabled

Composite image of President Trump and Devin Nunes
9 hours ago

Wired Wednesday: How Going to Work for Trump Turned Devin Nunes Into a Millionaire

10 hours ago

Former Sen. Joe Lieberman, Democrats’ VP Pick in 2000, Dead at 82

11 hours ago

Trump Criticizes Judge and His Daughter After Gag Order in Hush-Money Case

12 hours ago

CA Insurance Market ‘in Chaos,’ Says Former Insurance Commissioner. Can Lara Fix It?

12 hours ago

Stock Market Today: S&P 500 Sets a Record After Wall Streets Breaks Out of Its Lull

12 hours ago

House Speaker Mike Johnson Headed to Fresno on April 4

12 hours ago

Bredefeld, Smittcamp Debate the Salary of Valley Children’s CEO

MENU

CONNECT WITH US

Search

Send this to a friend