Dec 11, 2019

Federal Reserve keeps interest rates unchanged

Fed chair Jerome Powell at a news conference in October. Photo: Eric Baradat/AFP via Getty Images

The Federal Reserve said Wednesday that it would keep the benchmark interest rate at its current range of 1.5%-1.75%, a widely expected decision that ends the Fed's rate-cutting streak.

Why it matters: The central bank is confident the economy doesn't need easier borrowing conditions to stay afloat and signaled no further cuts through the 2020 presidential election, though uncertainties like the U.S.-China trade war remain. Wednesday's decision comes despite President Trump's continued push to goad the Fed to further trim rates.

Between the lines: Fed chairman Jerome Powell told reporters during a press conference that in order to move rates up, inflation would need to move up in a persistent fashion. Inflation has consistently undershot the Fed's 2% target.

  • The Fed's new dot plot released Wednesday, which lays out Fed members' interest rate projections down the line, shows interest rates eventually moving higher, not lower.
  • Still, while the Fed projects interest rates moving up sometime in the future, it sees inflation pressures remaining fairly muted.
  • "The relationship between slack in the economy and inflation is weak and has been weak," but there is still a relationship, Powell told reporters.

Fed policymakers have called out the trade war as a source of uncertainty that's hurt business investment.

  • If USMCA were enacted, "it would remove trade policy certainty and that would be a positive for the economy," Powell said.
  • Asked about the bigger source of economic uncertainty — USMCA in limbo or the U.S.-China trade war — Powell said one way to think about it is: "What's been moving financial markets ... it's been news about negations about US-China," not USMCA.

Go deeper: The market will need the Federal Reserve again in 2020

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