NEW YORK (Reuters) – The U.S. Federal Reserve on Wednesday held interest rates steady and signaled borrowing costs are likely to remain unchanged indefinitely, with moderate economic growth and low unemployment expected to continue through next year’s presidential election.
“Our economic outlook remains a favorable one, despite global developments and ongoing risks,” Fed Chair Jerome Powell said in a news conference following the decision. “We believe monetary policy is well positioned to serve the American people by supporting continued economic growth, a strong job market and inflation near our 2% goal.”
** Fed keeps target interest rate unchanged at 1.50-1.75%, sees no change in rates in 2020
** Fed maintains interest on excess reserves rate at 1.55%
** Fed says judges that current stance of monetary policy is appropriate to maintain U.S. economic expansion and inflation and employment goals
** Fed drops language from prior statement that ‘uncertainties about this outlook remain’
** Fed vote in favor of policy was unanimous
** Powell says the Fed is strongly committed to achieving symmetric inflation goal
** Powell says Fed stands ready to adjust repo operations to keep federal funds rate in range
** Powell says the Fed is open to potential repo market changes that do not threaten safety and soundness
** Powell says Fed’s framework review is looking to strengthen credibility of inflation target
STOCKS: U.S. stocks extend slight gains, with the S&P 500 .SPX last 0.35% firmer. BONDS: The 10-year U.S. Treasury note US10YT=RR yield rose slightly then slipped to 1.7896%, and the 2-year yield US2YT=RR eased to 1.6133%.
FOREX: The dollar index .DXY slipped more and was last off about 0.4%
RICK RIEDER, CHIEF INVESTMENT OFFICER, GLOBAL FIXED INCOME, BLACKROCK, NEW YORK
“In many respects, today’s policy announcement out of the Federal Reserve was like a precursor of what we can expect from the central bank in 2020; a lot of discussion and a great deal of interesting nuance, such as slightly modified growth, inflation, and SEP dot plots, but ultimately it matters more for those steeped in the intricacies of the Fed, and much less so for market-moving dynamics.” (Statement by email)
KARL SCHAMOTTA, CHIEF MARKET STRATEGIST, CAMBRIDGE GLOBAL PAYMENTS, TORONTO
“You are looking at a cautiously optimistic Fed. The tone that you see through the statement and projections suggest that they believe that they have taken out enough insurance to prevent a downturn.”
“The bar to a rate hike remains higher than the bar to lowering rates further but overall you are looking at a Fed that is fairly confident about where the economy is headed and expects inflation to remain under pressure for a prolonged period of time.”
“There is not a lot here to shift market expectations dramatically.”
TOM GARRETSON, FIXED INCOME STRATEGIST, RBC WEALTH MANAGEMENT, MINNEAPOLIS:
“It was largely as expected and given that expectations weren’t terribly high for this meeting it kind of checked all the boxes. Basically, it’s a victory lap for the Fed. By removing “uncertainty” from the statement, it’s basically saying that there’s little chance of rate cuts as this point. That sort of shored the outlook for 2020.
“With respect to Treasuries, our view is that the 10-year yield has a 2% speed limit in 2020. Yield curves should stay relatively flat with the Fed on hold. We think there’s a limit on how much the yield curve can steepen just given that we’re in the late stage of the economic expansion.”
QUINCY KROSBY, CHIEF MARKET STRATEGIST, PRUDENTIAL FINANCIAL, NEWARK, NJ
“The Fed is pleased with the effect so far of the lower rates they’ve given, not to mention global central banks easing as well, and that the economy seems to be on solid footing as well.”
“The Fed stands ready to act as appropriately if conditions warrant it. Right now the market needs a Fed that’s watching conditions, trade, tariffs and economic activity.”
“There was concern if it was mentioned or even hinted at that rate hike were a possibility that would be a definite negative for the market. This is what people expected.”
KRISTINA HOOPER, CHIEF GLOBAL MARKET STRATEGIST, INVESCO, NEW YORK
“It was just as expected, but we shouldn’t treat that as boring or uneventful. This is actually very important. The bar is very high for any rate hikes. What we saw from the dot-plot was that FOMC members’ policy prescription for 2020 is no rate hikes. That is very important and very positive for stocks and risk assets.
“We’re in a situation where unemployment is at 3.5% and the Fed does not plan on raising rates in the next year. It’s phenomenal when you think about it in the context of what we’ve seen in terms of monetary policy over the last few decades.
“It’s very hard to say what happens to the dollar, but because we don’t know what other central banks will be doing, but in general we’re likely to see the dollar moving in a range but remaining near levels it’s at today. I don’t expect it to strengthen much; I don’t expect it to weaken much in this environment. There’s always the potential for something unusual to happen, but I would assume the dollar stays where it is now.”
PAUL NOLTE, PORTFOLIO MANAGER, KINGSVIEW ASSET MANAGEMENT, CHICAGO
“There were one or two words different (in the press release) but looked like carbon copy of their last note. It was as-expected, ‘boring’ is the word I would describe it. It was pretty much as expected. That’s part of the reason you’re not getting much of a reaction in the markets.
“What’s more interesting is that everyone was on the same page. This was the first consensus without dissent since May of last year.
“They upgraded the economic outlook a little bit, so it’s normal to see a couple of them say maybe we do need a rate hike next year, but as we know that can change fairly rapidly. All you have to do is go back a full year to see that change.
“The Fed doesn’t have any greater visibility into the future than anybody else. They talk about being data dependent, but we are all data dependent. And we all — the Fed included — adjust our forecasts as the data comes in.
“The Fed is allowing inflation to run a little hot before they get really interested in hiking rates. That said, keep an eye on commodity prices in general. They’re relatively flat year-on-year.”
MICHAEL LORIZIO, SENIOR FIXED INCOME TRADER, MANULIFE ASSET MANAGEMENT, BOSTON
“It seems like it just reaffirmed the majority of the communication that we’ve seen from the committee members since the last meeting. It kind of reaffirmed the stance that they are on hold until the information changes in a significant enough way to cause them to readjust the current stance of monetary policy. They removed the word ‘uncertainties’ from the description of the outlook and I guess that is some reason to maybe think it’s a bit more of a positive outlook or positive assessment on the U.S. economy. Other than that, there is really very little reason to change how one was positioned going into it.”
JIM BARNES, DIRECTOR OF FIXED INCOME, BRYN MAWR TRUST, BRYN MAWR, PA
“A lot of it seems to be a reiteration of the key takeaways of the last FOMC meeting. It’s a Fed that at the current time is on hold and expects to be on hold for the near term.”
JASON PRIDE, CHIEF INVESTMENT OFFICER, PRIVATE WEALTH, GLENMEDE TRUST CO, PHILADELPHIA
“It’s ‘steady as she goes’ from the Fed today – the statement provided little groundbreaking news on the path of monetary policy. The prevailing message out of today’s meeting is that the Fed remains on hold, barring any material upside surprises for inflation. This accommodative stance should provide a measure of support for risk assets heading into the new year.” (Statement by email)
Compiled by Alden Bentley