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

Jerome Powell chairman of the U.S. Federal Reserve

The Fed announced that it was keeping its benchmark rate - which can influence everything from mortgages to credit cards to home equity lines of credit - in a range of 2.25 percent to 2.5 percent. "The dots, although they will probably be lower than in December, are likely to reflect another hike or two before the tightening cycle is over, and that might come as a surprise to many".

In recent months, Powell and the Fed have appeared to take a more dovish approach to interest rates amid concerns about slowing global growth - a result of a more than year-long trade war between the USA and China and uncertainties about Brexit.

They also said that as of May they would slow their monthly reduction of as much as $50 billion in asset holdings, and halt them altogether in September, ending what amounted to a second lever of monetary tightening that had run in the background since late 2017.

The Fed also lowered its expectation of economic growth for 2019 to just 2.1 percent. Chairman Jerome Powell and other Fed officials have hinted at doing that later this year, but haven't set a date yet.

The Federal Reserve held interest rates steady on Wednesday and its policymakers abandoned projections for further rate hikes this year as the US central bank flagged an expected slowdown in the economy.

The Fed's policy statement was unanimous. "The question for the market remains whether or not the four rate hikes from previous year and the unwinding of the balance sheet at the same time could be continuing, even now, to tighten financial conditions".

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Still, he said, there are ongoing risks, including those related to Britain's exit from the European Union, U.S. trade talks with China, and even the outlook for the U.S. economy, which he said the Fed is watching closely.

Oil prices were firm, supported by supply cuts led by producer club OPEC as well as USA sanctions against Iran and Venezuela, though gains were limited by concerns over global economic growth.

"The data are not now sending a signal that we need to move in one direction or another, in my view", he said. The dollar weakened broadly against major trading partners' currencies.

The Fed's outlook for rates, economic projections and balance sheet policy are "all more dovish than expectations", said TD Securities economist Michael Hanson. Prices have almost doubled since their mid-August lows and have surged more than 25 percent this year. US stocks recorded their steepest December losses since the Great Depression as President Donald Trump publicly hammered Powell to stop raising rates and investors saw the Fed's projected hikes as a policy mistake.

The Fed said that "the labor market remains strong but that growth of economic activity has slowed from its solid rate in the fourth quarter". The December forecast showed rates peaking at 3.125 per cent in 2020 and 2021, with a majority of officials clustered around that level.

It said: "Recent indicators point to slower growth of household spending and business fixed investment in the first quarter". After 1.8 per cent headline inflation in 2019, they see price gains of 2 per cent on both the main and core indexes for the next two years, eliminating the overshoot they had previously projected.

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