Fearing slower growth, Fed says no rate hikes this year

Roman Schwartz
March 21, 2019

The Federal Reserve does not expect to raise the benchmark lending rate again this year, according to a closely-watched forecast released on Wednesday (March 20), a surprising sign the United States economy is slowing. It will start slowing the balance sheet runoff in May. Some investors expect the next move to be a rate cut. And together with the Fed's dimmer forecast for growth this year - 2.1 percent, down from a previous projection of 2.3 percent - the statement it issued after its latest policy meeting suggests it's grown more concerned about the economy. What's more, with inflation remaining mild, the Fed feels to pressure to tighten credit. Indexes in Britain and France lost ground as investors closed positions before the Fed's decision, due at 1800 GMT.

The Fed has hiked interest rates for five consecutive quarters before today's announcement. The central bank also said it would stop reducing the size of its balance sheet by the end of September, sooner than expected. Yields have been falling since November as worries rose about a weaker global picture and a more patient Fed. The benchmark 10-year yield, which reflects investor sentiment about the overall health of the economy, fell by as much as 8 basis points to the lowest since January 2018 and was last at 2.539 percent. Policy makers expect to lift rates once in 2020, to 2.6% by the end of that year, and hold them steady in 2021. "They are still removing accommodation even after nine rate hikes by a decrease of their asset portfolio", said Michael Farr, head of investment firm Farr, Miller & Washington.

It was an aggressive downshift that likely will come as a shock to many economists who did not look for such a drastic change in outlook from the central bankers, who as recently as September expected to raise rates three times in 2019. The reaction is being fueled by media reports of USA concerns that China is pushing back against American demands in trade talks.

On the losing end, though, are USA banks, whose profits can take a hit if the gap between short- and long-term interest rates narrows.

Higher egg consumption related to heart disease, says study
The scientists looked at eating patterns. "But we think they represent an estimate of a person's dietary intake". That is relatively little, especially given that a half-egg daily is double what the average American eats.

After a two-day policy meeting that sealed the switch to a less aggressive posture, the Fed also said it would slow the monthly reduction of its holdings of Treasury bonds from up to $30 billion to up to $15 billion beginning in May.

May has only two days to win agreement for her deal to leave the European Union if she wants to go to a summit with the alliance's leaders on Thursday with something to offer them in return for more time.

The central bank's new embrace of patience and flexibility reflects its response since the start of the year to slow growth at home and overseas, a nervous stock market and persistently mild inflation. The current expectations are that the Fed is unlikely to raise interest rates again this year. Though the US economy is on firm footing, it faces risks from slowing growth and trade conflicts. "The Fed took out the entire rate hike scenario for this year".

While the central bank is very close to its twin goals of low and stable inflation and full employment, Chairman Jerome Powell and his colleagues must contend with risks from overseas, including slowing growth in Europe and China and possible spillovers from Britain's exit from the European Union. Investors are anxious that the bank could overdo the shrinking, which may cause the short-term rates to rise.

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