JAKARTA (TheInsiderStories) – United States (US) Federal Reserve (Fed) left the target range for its federal funds’ rate unchanged at 1.5-1.75 percent following its two-day meeting this week and signaled no plans to cut in 2020. Concluding a year that saw the central bank take down its benchmark rate three times, the Federal Open Market Committee (FOMC) on Wednesday (12/11) met widely held expectations.
Policymakers consider the current stance of monetary policy appropriate to support sustained growth, strong labor market conditions, and inflation near the 2 percent target. In its statement explaining the decision, the committee indicated the monetary policy is likely to stay where it is for an unspecified time, though officials will continue to monitor conditions as they develop. The decision to keep rates unchanged was unanimous, following several dissents in recent meetings.
“The Committee judges that the current stance of monetary policy is appropriate to support sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee’s symmetric 2 percent objective,” the statement said.
“The Committee will continue to monitor the implications of incoming information for the economic outlook, including global developments and muted inflation pressures, as it assesses the appropriate path of the target range for the federal funds rate,” the Committee added.
The language is consistent with recent statements from Fed Chairman Jerome Powell and his colleagues, who have said the policy is in “a good place” and likely to remain unchanged as long as current conditions persist.
The central bank kept its growth forecasts unchanged for this year at 2.2 percent; 2 percent for 2020; 1.9 percent for 2021; and 1.8 percent for 2022. Inflation is seen at 1.5 percent in 2019; 1.9 percent in 2020; 2 percent in 2021; and 2 percent in 2022; all unchanged from the September projection.
Regarding the fed funds rate, most participants expect no changes in 2020 although a hike is still seen in 2021. In the September projection, more participants expected a hike in 2020.
Members did reduce their inflation expectations this year. They now see the core personal consumption expenditures gauge to register just 1.6 percent growth this year, down from the 1.8 percent projection in September. They kept their estimates consistent at 1.9 percent in 2020 and 2 percent for the following two years.
The committee releases its economic estimates quarterly. While only 10 members vote on rate policy, all 17 FOMC officials have input on the economic and rate projections. The FOMC operates under a dual mandate of full employment and price stability. Unemployment is running at a 50-year low and job creation is coming off a blockbuster November.
However, inflation has remained stubbornly below the 2 percent level that the Fed considers healthy. Members in recent weeks have discussed multiple strategies to address the issue, though Wednesday’s statement did not indicate any changes to the Fed’s approach.
The statement also did not elaborate on any matters relative to the upset in overnight repo operations that took place in mid-September. Overnight interest rates spiked following a cash crunch, and the Fed since then has been conducting a series of operations to keep liquidity flowing and to make sure the funds’ rate stays in the target range.
An implementation note attached to the meeting statement did say the Fed’s offering rate is now 1.45 percent, down 10 basis points in October.
“This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments,” the Committee ended.
Written by Lexy Nantu, Email: email@example.com