Economy

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

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

US stock indexes were mostly lower late Wednesday afternoon as investors weighed the Federal Reserve's decision to rule out interest rate increases this year and its latest outlook on the USA economy.

The Federal Reserve on Wednesday unveiled a long-awaited plan to stop scaling back the vast portfolio of bonds it built up to spur an economic recovery from the 2007-2009 financial crisis and recession.

Homebuilders and automakers-companies whose goods are typically financed by consumers-will be cheered by the news, as lower interest rates will stimulate borrowing. Focus will be on how much growth is expected to slow this year and signals on future moves.

The committee members forecast a median federal funds rate this year of 2.4 per cent, down from the 2.9 per cent forecast in December, and 3.1 per cent in September. Fed officials further indicated that it would only raise rates one time in 2020.

The Fed's primary responsibilities consist of maximizing employment in the US and maintaining long-term price stability.

"We always emphasize that the interest rate projections in the [summary of economic projections] are not a committee decision", Powell said. The move to stand pat comes as the central bank pares its forecast of USA economic growth this year to 2.1 percent, down from its previous projection of 2.3 percent and the roughly 3 percent pace of expansion in 2018.

The central bank's new embrace of patience and flexibility reflects its calming response since the start of the year to slow growth at home and overseas, a nervous stock market and persistently mild inflation.

The Atlanta Federal Reserve Bank, which provides a so-called "nowcasting" tool to assess current growth, says the economy is growing an anemic 0.4 percent in the first quarter.

Mr Powell said the outlook for the US economy was positive, however he said economic risks were rising, including Britain's exit from the European Union and the US-China trade dispute.

All of which suggests that the Fed may recognize that it went too far after it met in December.

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Market watchers had been anticipating two interest-rate increases in 2019.

Federal Reserve chairman Jerome Powell repeated his promise to be patient on rate rises.

That message spooked investors, who anxious about the prospect of steadily higher borrowing rates for consumers and businesses and perhaps a further economic slowdown. With markets eyeing the FOMC meeting decision as well, we could be in for a bit of a lull until then.

The Fed raised rates seven times over the 2017-2018 period.

But after the December turmoil, the Fed in January began sending a more comforting message.

The Fed policymakers, emerging from a two-day meeting, also projected that the USA economy would grow more slowly this year and next, a change from the panel's projections just three months ago.

The Fed's policy statement was unanimous.

The forecasts could throw cold water on investors' expectations that the Fed has ended rate hikes.

US stocks closed mixed after volatile trading on Wednesday with the Dow posting triple-digit losses amid the Federal Reserve's latest monetary policy announcement.

The Fed's surprising change of direction follows the four rate increases a year ago, frequently in the face of vociferous antagonism from President Donald Trump, who called the central bank "crazy" for tightening monetary policy as the economy grew. It projects one quarter-point rate hike in 2020 and none in 2021. The two-year Treasury yield, which is more influenced by Fed movements, fell to 2.39 percent from 2.45 percent late Tuesday.