The Fed has left the door to a decline in interest rates in 2019 :: Investor.bg

US Federal Reserve Guerman Jerome Powell. Photo: Reuters

The US Federal Reserve has said it does not expect a reduction in interest rates in 2019, but hinted that the course of its policy could change depending on economic conditions, reported CNBC.

Although the central bank plans to leave its key rate unchanged, a change in mood among its representatives has been noted since their last meeting. Most central bankers have lowered their forecasts by about half a percentage point for the rest of the year, and Federal Reserve Governor Jerome Powell said some of they had decided to launch a procedure to reduce interest rates. The Fed abandoned its intention of being "patient," while Powell refused to identify low inflation as "transitory."

The regulator 's decision was made in the context of its various views on what would happen by the end of the year, with market forecasts still leaving room for maneuver in monetary policy before the end of 2019, depending on conditions.

Representatives of the Federal Open Market Commission voted by 9 votes to 1 to keep the key rate in a range of 2.25% to 2.5%, increased by a quarter point in December 2018.

The decision could continue the clash between Fed governor Jerome Powell and US President Donald Trump, who has sharply criticized the regulator's policy and repeatedly called for a reduction in interest rates.

The great support of some members for the reduction of interest rates contrasts with the divergence of views on what is coming.

The Fed's decision does not surprise investors, but the division of votes suggests that interest rates are on the rise, according to Neil Birell, senior investment manager at Premier Asset Management.

The Commission has changed its tone to the May statement to show that economic activity is "growing at a moderate pace", which is somewhat degraded by so-called "solid growth".

In its baseline scenario, committee members said they still expect a "prolonged expansion of economic activity" and an inflation rate of 2%, while realizing that "the uncertainty regarding these prospects has increased".

The Fed believes that the US labor market is "strong" with "stable" job growth despite disappointing data on agriculture.

Demand also indicates that household spending "appears to have increased in the first few months of the year".

Discretionary Fed

Regarding the committee's vote, eight of them subscribed to the idea of ​​a reduction in interest rates this year, while the same number voted in favor of the maintenance of interest rates and the one of them still keeps raising interest rates.

Seven of the 17 commissioners said that it would be appropriate to reduce interest rates by half a percentage point by the end of the year and eight members have ruled timely to reduce rates by a quarter point.

For 2020, nine members agreed to reduce the interest rate to about 2.1%.

According to market forecasts, the third probable reduction in interest rates will take place in March 2020, preceded by two others, one in July and one in December.

The Fed expects the US gross domestic product to grow 2.1%, while the unemployment rate is at its lowest level in the last 50 years – 3.6%.