Interest Rates

Fed signals it will likely hold rates near zero for months

The Federal Reserve signaled Wednesday that it will keep its key short-term interest rate near zero for the foreseeable future as part of its extraordinary efforts to bolster an economy that is sinking into its worst crisis since the 1930s As part of its emergency steps, the Fed said it will also keep buying Treasury and mortgage bonds to help keep rates low and ensure that companies can continue to lend easily to each other amid a near-paralysis of the economy caused by the coronavirus. It did not specify any amounts or timing for its bond purchases. “The Federal Reserve is committed to using its full range of tools to support the U.S. economy in this challenging time,” the central bank said in an unusually sweeping declaration at the top of its statement. The viral outbreak and measures to contain it,” the Fed’s policy statement noted, are “inducing sharp declines in economic activity and a surge in job losses.” Under Chairman Jerome Powell, the Fed is confronting a deeply perilous moment for an economy that had looked robust just a few months ago. Since the virus struck with full force last month, widespread business shutdowns have caused roughly 30 million workers to lose jobs. As layoffs mount, retail sales are sinking, along with manufacturing, construction, home sales and consumer confidence. In its statement, the Fed also raised concerns about slowing inflation, which is likely to sink further below its 2% target level in the coming months. “Weaker demand and significantly lower oil prices are holding down consumer price inflation,” the statement said. During two emergency meetings in March, the central bank cut its benchmark rate to a range between zero and 0.25% . It has also announced nine new lending programs to pump cash into financial markets and provide support to large and medium-sized businesses as well as cities and states. The Fed’s statement provided no additional details about its actions. It said it will keep its rate at nearly zero “until it is confident that the economy has weathered recent events and is on track to achieve its maximum employment and price stability goals.” That’s the same language it used in its previous statement last month. Nor did the Fed provide details about the pace of its purchases of Treasurys and mortgage-backed securities. It has tapered those purchases recently as markets have calmed. But earlier this month, it bought as many Treasury securities in a day as it did during an entire month in the 2008-2009 Great Recession. The Fed’s statement came on the same day that the Commerce Department released grim news about the economy: Economic output shrank at a 4.8% annual rate in the first three months of the year – the worst showing since the Great Recession struck near the end of 2008. The economic picture is expected to grow ever darker, with the economy forecast to contract at a shocking 30% to 40% annual rate in the April-June quarter. The unemployment rate could reach 20% when April’s jobs report is released next week. The central bank has already slashed its benchmark interest rate to near zero and escalated its purchases of Treasury and mortgage-backed securities to pump cash into financial markets to smooth the flow of credit. It has also said it will buy corporate bonds and lend to states and cities – two actions it has never previously taken.

Fed slashes interest rates close to zero, boosts assets by $700B to fight coronavirus pandemic

The Federal Reserve on Sunday slashed interest rates by a full percentage point to near zero and said it would buy $700 billion in Treasury securities, an aggressive step to insulate the U.S. economy from the coronavirus pandemic. “The coronavirus outbreak has harmed communities and disrupted economic activity in many countries, including the United States,” the Federal Open Market Committee said in a statement. “The Federal Reserve is prepared to use its full range of tools to support the flow of credit to households and businesses.” The benchmark federal fund rate is now at a range of 0 to 0.25 percent, down from a range of 1 to 1.25 percent. The cut essentially brings the nation’s interest rate to zero — something that President Trump has repeatedly pressed for over the past year. The historically low interest rates, which have not been at this level since the 2008 financial crisis, are expected to remain until the economy recovers from the recent downturn. “The Committee expects to maintain this target range until it is confident that the economy has weathered recent events and is on track to achieve its maximum employment and price stability goals,” the Fed said in its Sunday evening statement. The Fed also said that it will buy at least $500 billion in Treasury securities and $200 billion in mortgage-backed securities over the coming months, a program known as “quantitative easing.” Earlier this month, Powell announced an emergency 50-basis-point cut to the benchmark federal funds rate, sending it to a range of just 1 percent to 1.25 percent. It marked the first time since the financial crisis that the Fed has reduced its key rate outside of scheduled policy-setting meetings. “Desperate times call for desperate measures and the Fed is doing just that in an effort to keep credit markets functioning and prevent the type of starving of credit that nearly toppled the global economy into a depression in 2008,” Bankrate chief financial analyst Greg McBride said in a statement.

Fed keeps interest rates steady, citing muted inflation

Federal Reserve officials unanimously voted to leave interest rates unchanged during their two-day meeting this week, with policymakers continuing to signal that they will be patient with monetary policy moving forward. “We do think our policy stance is appropriate right now,” Chairman Jerome Powell said during a press conference following the meeting’s conclusion. “We don’t see a strong case for moving in either direction.” Economists widely expected the U.S. central bank would keep the benchmark federal funds rate at 2.25 percent to 2.5 percent as it sought to strike a balance between overarching geopolitical concerns, muted inflation and otherwise “solid” economic growth. In the first quarter of 2019, GDP increased at a better-than-expected annualized rate of 3.2 percent. Unemployment, meanwhile, remains at 3.8 percent. But Fed officials mostly looked beyond the good rate of economic growth in the three-month period from January to March, instead favoring a wait-and-see approach as they watch how certain economic and financial developments – like a global trade war, and uncertainties surrounding Brexit – play out. “In light of global economic and financial developments and muted inflation pressures, the Committee will be patient as it determines what future adjustments to the target range for the federal funds rate may be appropriate to support these outcomes,” the Fed said in a statement released after the meeting. The Fed’s decision, however, could provide additional fodder to President Trump, who’s frequently suggested that policymakers should cut interest rates Opens a New Window. by one percentage point and implement more quantitative easing because inflation is so low. “The Trump administration may point to this inflation data to accuse the Fed of having raised rates too quickly in 2018 and put even more pressure on the Fed to cut rates this year,” Cailin Birch, the global economist at the Economist Intelligence Unit, said. “We believe the Fed will successfully resist this pressure, but relations with the Trump administration will remain tense in 2019 to 2020.” At their last meeting, Fed policymakers signaled there would be no rate hikes for the remainder of 2019 in light of global economic and financial developments, as well as muted inflation. The move was a stark turn from the December meeting when Fed Chairman Jerome Powell suggested there could be as many as two hikes this year. Since then, inflation has considerably decelerated, running below the target range of 2 percent. Powell has previously emphasized the importance of the 2 percent inflation range, which he said is consistent with a healthy economy. In March, the core personal consumption expenditures index — the Fed’s favorite inflation gauge, which excludes food and energy prices — was up 1.6 percent, compared to a year earlier. That’s the lowest level of growth since January 2018. “We are strongly committed to the 2 percent inflation objective,” Powell said on Wednesday. And according to Luke Bartholomew, an investment strategist at Aberdeen Standard Investments, if inflation decreases further, the Fed will be hard-pressed to defend not cutting interest rates. ” Some policymakers have flagged core inflation of 1.5 percent as a crucial level which might justify easing policy, and we are already pretty close to these levels,” he said.


Fed Says It Won’t Hike Rates in 2019, Citing Economic Slowdown

The Federal Reserve left interest rates unchanged Wednesday and predicted that it will not raise them again for the entirety of the coming year due to a recent slowdown in economic growth. In a widely anticipated move, the central bank’s policy-making Federal Open Market Committee abandoned its previous prediction, made just three-months ago, of continued strong economic growth that would necessitate two rate hikes this year. After predicting in December that the economy would continue to grow at 2.3 percent on the year, officials revised their assessment to 2.1 percent. As a result, the benchmark-funds rate will remain between 2.25 percent and 2.5 percent. The Fed has generally kept rates low since the 2008 financial crisis, but began raising them incrementally under Janet Yellen. The new economic-growth forecast further widens the chasm between the central bank and the White House, which has consistently provided the rosier prediction of 3.2 percent growth this year. The decision to halt rate hikes will likely please President Trump, who, following the Fed’s December announcement, lambasted Chairman Jerome Powell for threatening the bull market he’s enjoyed since taking office. Powell, for his part, has resisted criticizing the president and has repeatedly asserted the Fed’s independence from the Trump administration.

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Fed Raises Rates as Labor Market, Inflation Fuel Confidence

As expected the Federal Reserve raised short-term interest rates by 0.25% and reiterated there will likely be two more increases from the central bank this year. Click here for analysis, market reaction and a press conference with Fed Chief Janet Yellen who detailed the Fed’s newest projections for the U.S. economy, the first since President Trump took office.

Fed Hikes Rates, Yellen Cautious About Future Economic Policies

After a year of anticipation and carefully choreographed public messaging, the Federal Reserve on Wednesday pulled the trigger on raising the short-term federal funds rate – for only the second time since 2006 – and boosted its outlook for the future path of rate increases. The unanimous decision to hike rates by 0.25 percentage point to a range of 0.50% – 0.75%, came at the conclusion of the policy-setting Federal Open Market Committee’s final two-day meeting of the year. Policymakers cited continued economic improvement including “solid” job gains, higher household spending and rising inflation. “Our decision to raise rates…is a reflection in the confidence we have in the progress the economy has made and our judgment that progress will continue. And the economy has proven to be remarkably resilient, so it is a vote of confidence in the economy,” Fed Chief Janet Yellen said in a press conference following the 2:00 p.m. ET decision. The central bank also boosted from two to three its outlook for the number of rate increases it anticipates in 2017. Still, the Fed said the pace of those rate increases would remain “gradual,” as it foresees “moderate” economic growth over the next year. In its economic projections, the Fed estimates a 2.1% annualized pace of economic growth in 2017 alongside an unemployment rate of 4.5% and core inflation rising to 1.9%. However, the Fed’s rate-hike forecast is reminiscent of last December’s projected four rate hikes in 2016, and is still a bit too aggressive, said KPMG’s chief economist, Constance Hunter. “I think the bite out of growth from the higher rates we’ve already seen from the back up in the long end of the curve will mean two rate increases next year,” she said. “Add to that the fact we only need about 134,000 average job growth next year to get to the 4.5% unemployment rate with the current participation rate, and we’re already looking at a slower growth trajectory.” Indeed, with the unemployment rate at 4.6% in November, and expected to continue declining, the Fed’s focus likely moves more toward boosting inflation, the second part of its dual mandate of full employment and price stability, said David Lafferty, chief market strategist at Natixis Global Asset Management. “We have probably seen most of the reduction in the unemployment rate that we’re going to see, so what it’s going to take to draw people back into the labor force is higher wages,” he explained.