Friday, 19 April, 2019

Fed minutes reaffirm patient approach to interest rates in 2019

Fed minutes reaffirm patient approach to interest rates in 2019 Fed officials expect to keep interest rates unchanged this year — unless economy shifts
Priscilla Morrison | 13 April, 2019, 00:30

The Federal Reserve Board building on Constitution Avenue is pictured in Washington, U.S., March 27, 2019.

Minutes from the Fed's March 19-20 meeting showed most policy makers believed the central bank should leave U.S. interest rates untouched for all of 2019, citing economic risks brewing overseas.

The Fed at its March 19-20 meeting left its key policy rate unchanged and trimmed its rate hikes outlook this year from two to none.

"The minutes of the March meeting, when the FOMC formally abandoned its prior expectation of two rate hikes this year, are a bit less dovish than might have been expected", said Ian Shepherdson, chief economist at Pantheon Macroeconomics.

The minutes, released on Wednesday, show the Fed saw the US economy weathering a global economic slowdown, and policymakers made clear they saw no recession for the United States in the new few years.

The minutes said that Fed officials believe "the recent softness likely reflected temporary factors" such as the federal government's 35-day partial shutdown and the sharp drop in the stock market in December.

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Several participants, however, noted that their views of the appropriate target range "could shift in either direction based on incoming data and other developments" and some indicated that if the economy evolved as they now expected, with economic growth above its longer-run trend rate, "they would likely judge it appropriate to raise the target range for the federal funds rate modestly later this year".

Also last month, the Fed announced that the shrinking of the balance sheet - a policy sometimes called quantitative tightening - would slow in May and end in September.

Some market watchers have seen an increasing possibility of a rate cut in recent weeks, while officials see an adjustment in either direction as possible.

While the Fed was anxious about the economy, the U.S. central bank was not as concerned about rising inflation in the wake of the tariff war between the USA and China.

The minutes noted that the discussion last month included concerns by several policymakers that the Fed's quarterly Survey of Economic Projections has at times been misinterpreted by the public. That would involve resuming the purchase of U.S. Treasury securities, according to the minutes.

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