Slower US growth means no rate rise for 2019, says Fed

Thursday, 21 Mar, 2019

Powell, who faced public criticism late past year from President Trump as well as market participants who viewed the Fed's rate policy as too hawkish, said that rate increases may remain on pause indefinitely, depending on how the economy fares in coming quarters.

A gauge of stocks across the world fell on Wednesday as a boost from a dovish Federal Reserve was not enough to offset concerns over economic growth and U.S. The two-year Treasury yield, which is more influenced by Fed movements, fell to 2.39 percent from 2.45 percent late Tuesday.

"The Fed is still tightening monetary policy".

Market watchers had been anticipating two interest-rate increases in 2019. The Fed envisions no change in interest rates until sometime in 2020, and not at all if the economy weakens further. The Fed had raised rates four times a year ago and a total of nine times since 2015.

U.S. stock indexes finished modestly higher on Monday, extending the market's solid gains from a rally last week. The Dow Jones Industrial Average lost 141 points, or 0.5 per cent. Analysts said the Fed's downgraded outlook for the economy might have alarmed investors.

Expectations for an interest-rate hike this year have fallen below those for a cut. The most important formal change in Fed policy is a reduction in the rate of reduction of the Fed's $4 trillion balance sheet to just $15 billion a month starting in May, and to zero by the end of the year. Benchmark 10-year notes last fell 3/32 in price to yield 2.6105 percent, from 2.601 percent late on Monday.

Confidence among Asian companies remained near three-year lows in the first quarter as the US-China trade dispute dragged on, pulling down a global economy that is already on a downward path, a Thomson Reuters/INSEAD survey found. Focus will be on how much growth is expected to slow this year and signals on future moves. But at his news conference, Powell played down that prospect. "Patient means that we see no need to rush to judgment".

In a separate statement, the Fed said it intends to conclude the reduction of its aggregate securities holdings at the end of September.

In a March 20, 2019 statement called "Balance Sheet Normalization Principles and Plans", a portion of it reads, "The Committee intends to continue to allow its holdings of agency debt and agency mortgage-backed securities (MBS) to decline, consistent with the aim of holding primarily Treasury securities in the longer run".

Third, they will want to know the Fed's view about the economy. There's also been a slowing in inflation.

In January, the Fed pivoted after hiking rates four times in 2018, pledging patience before making further moves. "The Fed did a big about-face on policy". This might lead to investors dumping stocks to the high-yielding bonds.

"There's one hike projected for 2020 but there's a long time between now and then and so the market is effectively taking the view that the Fed is done tightening".

But after the December turmoil, the Fed in January began sending a more comforting message.

The rate-setting Federal Open Market Committee is due to announce its latest decision at 1800 GMT, after which Fed Chairman Jerome Powell will face the news media.