The Fed's Powell: US Economic Growth Still Positive at a Healthy Level
The Fed's Governor Jerome Powell - Photo by Federal Reserves.

JAKARTA (TheInsiderStories) – United States Federal Reserve policymakers hold its benchmark rate in the range of 2.25-2.5 percent and signal that there will be no more increases this year, it said on Wednesday (04/10). But, the central bank said that it still opens space for the possibility of a rate hike before the end of the year, if economic conditions improve.

The Fed’ policy was made in light of concerns about ongoing trade talks, Brexit deal and the possibility of a bigger-than-expected economic slowdown in Europe and China, although some participants said that the risk of adverse outcomes was somewhat lower than in January.

“Other downside risks include the possibility of a large overflow from a larger than expected economic slowdown in Europe and China, persistence in spending, or a sharp decline in fiscal stimulus,” said the Chairman Jerome Powell in the minutes meeting.

The Federal Open Market Committee (FOMC) also noted that their views on the right range of targets for the level of federal funds could shift in any direction based on incoming data and other developments. It means, until the end of the year, there is still a possibility to raise interest rates.

In addition, the FOMC also pledged to start slowing down the balance sheet in May and the overall withdrawal at the end of September, according to the official report.

Some other participants observed that economic setbacks in the US, if that happened, could be exacerbated by a significant debt service burden for many companies.

The Committee also cited a number of reverse risks related to the prospects for economic activity, including results where various sources of uncertainty were well resolved, consumer and business sentiment increased sharply, or recent increases in labor productivity growth signaled an increase in the underlying trend.

“Reversing the risk to the outlook for inflation includes the possibility of unexpected wage pressures and causing a price increase that is greater than expected,” it said.

The committee assessed that there had been a lot of tightening during the last part of last year in financial conditions that had been reversed. The Fed is referred to as an important contributor to improving financial conditions since the beginning of this year.

Moreover, participants noted that asset valuations have recovered strongly and also discussed declines in recent months in long-term Treasury securities.

But the Committee expressed concern that the yield curve for Treasury securities is now quite flat and notes that historical evidence shows that the reverse yield curve can signal economic weakness.

The Committee’s meeting also noted that extraordinary short-term premium rates at long-term interest rates make historical relations a less reliable basis for assessing the implications of the current behavior of the yield curve.

With regard to the outlook for monetary policy outside of this meeting, the majority of participants hoped that the evolution of the economic outlook and risks to the outlook would guarantee leaving the target range unchanged for the rest of the year.

Some participants noted that the current target range for federal funds levels is close to the estimated long-term neutral level and predicts economic growth to continue to approach long-term trend levels during the forecast period.

The Committee stressed that decisions about the right range of targets for the level of federal funds at the upcoming meeting will depend on their ongoing assessment of the economic outlook, as informed by various data, as well as on how risks to these prospects are developing.

Finally, the Committee indicated that if the economy evolved as expected now, with economic growth above its long-term trend level, then there is the possibility of raising the target range for a small federal fund level by the end of this year.

Written by Daniel Deha, Email: daniel@theinsiderstories.com