Home Economy U.S. Federal Reserve leaves main interest rate unchanged, saying policy is appropriate

U.S. Federal Reserve leaves main interest rate unchanged, saying policy is appropriate

by Bloomberg News

The Federal Reserve kept its benchmark interest rate steady and continued to signal policy would stay on hold for the time being as the U.S. enters a presidential election year.

The target range of the federal funds rate of 1.5 per cent to 1.75 per cent is “appropriate to support sustained expansion of economic activity,” the Federal Open Market Committee said Wednesday, repeating language from the December statement.

Policy makers also changed their language to say that the current stance of monetary policy is appropriate to support “inflation returning to the committee’s symmetric 2 per cent objective.” Previously they had said policy was supporting inflation “near” the goal.

Their preferred personal consumption expenditures price index rose 1.5 per cent for the 12 months ending in November.

Officials also approved a 5 basis-point increase on the rate they pay on excess reserves to 1.6 per cent — a technical adjustment designed to keep the main funds rate within its designated range. The Fed also raised its overnight reverse repurchase rate by the same amount to 1.5 per cent. It also extended term and overnight repos at least through April. The central bank had earlier signalled such measures were possible.

In addition, the FOMC downgraded its assessment of household spending to say it has been rising at a “moderate” pace, instead of its earlier characterization of the rate as being “strong.” The committee repeated that economic activity has been rising at a “moderate” rate, with “strong labour market conditions.”

Officials gathered with financial markets on edge as a deadly virus in China weighs on its economy and could threaten global growth. Policy makers also endured another attack from President Donald Trump, facing reelection in November, who reiterated in a tweet Tuesday his latest call for the Fed to cut rates.

The FOMC decision was the panel’s second-straight unanimous vote.

Following three cuts in 2019, U.S. central bankers have said their policy is supporting the country’s record expansion despite headwinds from trade and geopolitical uncertainty.

Nonfarm payroll growth averaged 176,000 a month last year, while the unemployment rate held below 4 per cent for most of the year.

Data since the December FOMC meeting have shown the housing market has held up, fuelled in part by last year’s rate cuts. Consumers also remain upbeat about their prospects, surveys have shown.

Manufacturing, however, has showed scant improvement, consistent with a downshift in investment and sluggish markets for exports.

Business investment could be further dented by Boeing Co.’s suspension of 737 Max production starting in January. The planemaker received just three commercial aircraft orders in December, down from 63 the prior month, and doesn’t expect regulators to clear the grounded Max to resume flying until mid-2020.


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