US Fed holds rates steady, signals cuts possible later this year

Daniel Fowler
June 20, 2019

The U.S. Federal Reserve on Wednesday signaled interest rate cuts beginning as early as July, saying it is ready to battle growing global and domestic economic risks as it took stock of rising trade tensions and growing concerns about weak inflation.

Fed officials say that uncertainties "have increased" and for that reason, the central bank was prepared to "act as appropriate to sustain the expansion".

Federal Reserve Board Chairman Jerome Powell arrives at his news conference on May 1, 2019.

The US Federal Reserve left its key interest rate unchanged Wednesday but signaled that it's prepared to start cutting rates if needed to protect the USA economy from trade conflicts and other threats.

Wall Street was closely watching the decision, as traders clamored for an interest rate cut.

A gauge of global stock markets rose on Thursday while the dollar dropped and global bond yields plunged, with the 10-year USA yield falling below two percent, after the Federal Reserve signaled possible interest rate cuts later this year.

A survey of 17 Fed officials showed that almost half now expect at least one rate cut this year, with seven projecting two cuts.

The new economic projections showed policymakers' views of growth and unemployment were largely unchanged from March. Lowering that rate can help stimulate the economy as well as increase inflation, which remains shy of the Fed's target of 2% a year.

Trump blasts Draghi, China for weak currencies
Draghi noted it was also possible to re-start a bond-buying stimulus program that had been halted only in December. However, Draghi's Tuesday remarks immediately boosted euro inflation against the dollar by up to 0.3%.

Seven of 17 policymakers said they expected it would be appropriate to cut rates by half of a percentage point by the end of 2019, and an eighth saw a rate cut of a quarter point as appropriate.

That was not enough to change the median outlook for the Fed's targeted overnight lending rate, which officials projected to remain in a range between 2.25 percent and 2.50 percent for the rest of this year.

Markets are nearly universally predicting multiple Fed moves this year and seem to view the Fed stance as dovish enough for now, with the three major stock indexes closing with modest gains following the announcement. St. Louis Fed President James Bullard voted to lower the rate, the first dissent since Mr. Powell became chairman in February 2018.

The statement said the Fed still sees a continued economic expansion and inflation at long last rising to the two percent target as the most likely outcome. It has recovered a large part of its 6.7% losses made after U.S. President Donald Trump threatened new tariffs on all of China's imports last month. Ahead of the statement, stocks had been fractionally lower on the day.

Economist Stephen Moore, who withdrew from consideration as a presidential nominee to the Fed this spring, criticized the decision not to cut rates.

"We think the Fed delivered", said John Augustine, chief investment officer at Huntington National Bank in Columbus, Ohio. "I have a four-year term, and I fully intend to serve it". "However, in the event inflation picks backs up, I'm apprehensive the Fed could be behind the curve if rates do in fact get cut too soon".

The Fed should not be under the president's influence in setting monetary policy, US Congress House of Representatives Speaker Nancy Pelosi said on Wednesday.

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