Interest Rates to Remain Steady for Now, Fed Says

Interest Rates to Remain Steady for Now, Fed Says

On Wednesday, the Fed said it would be patient in raising interest rates further this year as it pointed to growing uncertainty about the USA economic outlook.

The Federal Open Market Committee "will be patient as it determines what future adjustments to the target range for the federal funds rate may be appropriate to support" a strong labor market and inflation near 2 percent, the central bank said in a statement Wednesday following a two-day meeting in Washington.

Citing rising uncertainty about the USA economic outlook, Fed Chairman Jerome Powell said the case for raising rates had "weakened" and, in a statement, the U.S. central bank dropped its earlier expectation for "some further" tightening.

Federal Reserve Chairman Jerome Powell's first press conference of 2019 left market expectations for an interest-rate hike this year hanging by a thread, and raised the chances of a cut in 2020.

Moreover, the Fed said it could "adjust the details of its balance sheet normalization program", which now is set to let $50 billion of its holdings of Treasury and US agency mortgage-backed securities mature each month without replacing them. The policymakers also said they're prepared to slow the reduction of their bond holdings if needed to help the economy.

MSCI's broadest index of Asia-Pacific shares then rose to its highest since October helped by a 1 percent jump on Japan's Nikkei which shrugged off the normal headwind of a higher yen.

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Royce Mendes, senior economist at CIBC World Markets said that Treasuries have rallied, pushing bond yields lower and the USA dollar has sold off as the tone in the monetary policy statement were more dovish than expected.

Powell has been invoking the word "patient" to describe the Fed's latest approach to rates increases.

"The situation now calls for patience", he said, referring to the prospect of further rate hikes. "Because despite positive earnings and a strong global economy, the trade issue still remains an overhang", said Scot Lance, managing director at Titus Wealth Management in Larkspur, California. The Fed's balance sheet surged following the 2008 financial crisis, and many investors believe its effort to shrink it may stifle economic growth.

"Uncertainty is not the friend of business", Powell said. Policy makers will still update economic projections quarterly. Its benchmark short-term rate will remain in a range of 2.25% to 2.5% after having been raised four times past year.

What are traders saying With Wednesday's policy, the Fed seems to have signalled no further rate hikes for 2019.

The US central bank said continued economic and job growth was still "the most likely" outcome. On Wednesday, the statement said "market-based measures of inflation compensation have moved lower in recent months".

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