Federal Reserve keeps interest rates on hold amid 'favorable' economic outlook

Daniel Fowler
December 12, 2019

Federal Reserve Chair Jerome Powell arrives to speak at a news conference after the Federal Open Market Committee meeting, Wednesday, Dec. 11, 2019, in Washington.

Meanwhile, he said, the investors also remained cautious ahead of the next round of U.S. tariffs on Chinese goods.

After cutting rates three times earlier this year, the Fed left its benchmark rate at the target range of between 1.50 per cent and 1.75 per cent, a decision that was widely expected. Expectations that rates won't rise reduce the dollar's attractiveness to yield-seeking investors.

The S&P 500, Dow and Nasdaq Composite have turned in big years measured in the December to December annual period 100% of the time after similar S&P 500 gains through November. Officials forecast their policy remains supportive of growth in coming years - even with the USA and China yet to reach a trade deal, Brexit's future in question ahead of Thursday's United Kingdom election and a lackluster global economic picture.

And given that inflation is lower than the Fed wants despite unemployment near a 50-year low, the handful of policymakers expecting higher rates may find it a hard sell.

"It just gave more confidence to the market that the Fed is going to be on the sidelines in 2020", said Hank Smith, co-chief investment officer at Haverford Trust.

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Treasury yield dipped slightly, with the 10-year rate trading at 1.824%.

"The Fed is now quite dovish & given likely adjustment of inflation target in 2020 this bodes well for risk assets".

Brazil's central bank also decides on interest rate. U.S. yields declined by 3.6 bps (2-yr) to 4.9 bps (10-yr) with the belly of the curve outperforming the wings.

The Fed said it believed "the current stance of monetary policy is appropriate", as it dropped references to economic "uncertainties" clouding the outlook.

The economy will be a central issue in US President Donald Trump's reelection campaign against a Democratic challenger likely to call for different economic policies. Powell confirmed that the bar for hiking rates is probably higher than the one to cut in case of unexpected weakness.

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