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

Go deeper

The Fed's statement is a bit of a head-scratcher

Screenshot of the Fed's dot plot

Wednesday's Federal Open Market Committee meeting was largely a non-event, with the Fed holding U.S. interest rates steady as expected by nearly 100% of the market.

Between the lines: However, the Fed's statement and predictions for future policy left many confused.

Go deeperArrowDec 12, 2019

Powell and the risk-off bull market

Jerome Powell. Photo: Alex Wong/Getty Images

The Fed’s 180-degree turn was the story of 2019, asset managers and market analysts say.

What happened: Chairman Jerome Powell and the U.S. central bank went from raising interest rates for a fourth time at the close of 2018 and giving market watchers the explicit expectation this would continue in 2019, to doing the opposite. The Fed cut rates thrice and even began re-padding its balance sheet in the last quarter of the year, bringing it back above $4 trillion.

Go deeperArrowJan 2, 2020

The Fed may announce more quantitative easing before year-end

Photo: Brooks Kraft/ Getty Images

While Wall Street consensus is calling for the Fed to remain on hold through December 2020, strategists at Credit Suisse warn the U.S. central bank may not even be on hold through the end of 2019.

The big picture: They're expecting the Fed to begin its fourth round of quantitative easing before the end of the year in an effort to settle problems in the repo market.

Go deeperArrowDec 11, 2019