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Washington (AFP)
There is virtually no chance for the US Federal Reserve to raise interest rates over the coming week, as policymakers have virtually vowed to hold back from the slowing global economy.
With inflation remaining subdued with the slowdown in US economic growth in 2019, economists also announced that Fed officials would further reduce the number of expected rate increases this year, compared with the two December forecasts.
Fed Chairman Jerome Powell is expected to announce the second strategic decision of the year on Wednesday by the federal Open Market Committee.
Reference interest rates are now in the range of 2.25-2.5% and the futures markets are no longer seeing any rate hike in 2019.
And investors now estimate one in three that the central bank will reverse its direction and begin to lower rates over the next 10 months.
Some economists warn that this is unlikely: with declining unemployment and possibly rising wages, inflation could resurface as early as the summer, forcing the Fed to act.
However, in his Congressional testimony last month, Powell said he expects low energy prices to drive inflation even lower than the 2% target set by the Fed, at least for a "moment."
Similarly, other influential players in the FOMC have also called for caution: Fed Chairman in New York John Williams said this month that he foresaw a "considerable" slowdown in economic growth this year.
And Fed governor Lael Brainard said it was time to move to a "watchful waiting period" in matters of politics.
His remarks marked a significant change: six months earlier, Brainard – known to be a less aggressive "dove" on rate hikes – suggested the Fed to continue to raise rates until 2019 , without stopping to stay "neutral". which does not stimulate or slow down the economy.
– A hike or none? –
"It's a completely different world," Kathy Bostjancic, head of macro-US investor services at Oxford Economics, told AFP.
"I think they were surprised that inflation did not increase."
The defeat of Wall Street in December, when the S & P 500 lost nearly 10% of its value for fear that the Fed will continue its efforts, was a learning moment, Bostjancic said.
"I think the markets scared them a bit and I think all of this has led them to say that they are taking a break for a while," she said.
His company, like many of them, has reduced its forecasts to a single rate hike this year (instead of two before) and expects first-quarter economic growth to slow to 0.7%, its the slowest pace in more than three years.
Employment growth halted in February but maintained a good average pace and the housing sector is showing signs of recovery.
At the same time, manufacturing and consumer spending fell sharply. A major question mark remains the extent of the slowdowns in China and Europe.
But Joseph Gagnon, principal investigator at the Peterson Institute of International Economics, said that US growth should be stronger the rest of the year. It is therefore unlikely that the Fed will reduce to zero its median forecast of rate hikes in 2019.
"They think the slowdown is now below potential," he told Fed officials.
"If the economy continues at 2%, that would still justify a further rate hike at some point."
? AFP 2019
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