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Fed keeps rates unchanged, makes case for patience

Federal Reserve Chairman Jerome H. Powell on Jan. 30, 2019, announces the Fed's decision to hold interest rates steady at a news conference following a Federal Open Market Committee meeting in Washington, DC, USA. EPA-EFE/JIM LO SCALZO

Federal Reserve Chairman Jerome H. Powell on Jan. 30, 2019, announces the Fed’s decision to hold interest rates steady at a news conference following a Federal Open Market Committee meeting in Washington, DC, USA. EPA-EFE/JIM LO SCALZO

EFE

The United States’ Federal Reserve left its benchmark short-term interest rate unchanged on Wednesday, keeping it at a target range of between 2.25 percent and 2.5 percent.

That decision by the Federal Open Market Committee (FOMC), the Fed’s monetary-policy making body, was approved by a unanimous 10-0 vote.

The FOMC said in a statement after its latest two-day meeting that it will be “patient” as it determines what future adjustments to the federal-funds rate are appropriate to achieve sustained economic growth, a strong labor market and inflation near its 2 percent objective.

The statement pointed out that US economic activity “has been rising at a solid rate,” but that the FOMC will be cautious about raising interest rates further “in light of global economic and financial developments and muted inflation pressures.”

“Household spending has continued to grow strongly, while growth of business fixed investment has moderated from its rapid pace earlier last year,” the statement added.

Various indicators reveal the strength of the US economy, including an unemployment rate of just 3.9 percent at the close of 2018 (regarded as full employment by economists) and an inflation rate just below the Fed’s 2 percent target.

Speaking at a press conference on Wednesday afternoon, Federal Reserve Chairman Jerome Powell said the central bank’s current policy stance was justified considering the situation both at home and abroad.

“We continue to expect that the American economy will grow at a solid pace in 2019, although likely slower than the very strong pace of 2018,” he said.

Powell added that “while most of the incoming domestic economic data have been solid, some surveys of business and consumer sentiment have moved lower, giving reason for caution.”

“Growth has slowed in some major foreign economies, particularly China and Europe. There is elevated uncertainty around several unresolved government policy issues, including Brexit (the United Kingdom’s planned exit from the European Union ), ongoing trade negotiations and the effects from the partial government shutdown in the United States.”

In his remarks, Powell said policy-makers were seeing “cross-currents” in the data.

“At such times, common sense risk management suggests patiently awaiting greater clarity - an approach that has served policymakers well in the past,” the Fed chairman said.

Prior to the latest interest rate decision, economists had been forecasting two rate hikes in 2019. The FOMC raised rates four times in 2018, drawing sharp criticism from US President Donald Trump.


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