The Federal Reserve left interest rates unchanged and signaled it would keep them on hold through 2020 amid a solid economy, sticking to the sidelines during an election year.
“The committee judges that the current stance of monetary policy is appropriate to support sustained expansion of economic activity, strong labor market conditions, and inflation near the committee’s symmetric 2% objective,’’ the Federal Open Market Committee said in a statement Wednesday following a two-day meeting.
Fed funds futures held steady and continued to show a quarter-point cut fully priced in for the first half of 2021. The Treasury 10-year yield briefly pared its earlier decline before reversing and extending its drop to a fresh low of the day, as did the Bloomberg dollar index. U.S. stocks edged higher.
The Fed, in its first unanimous vote since May, said it will continue to monitor the implications of data for the economic outlook “including global developments and muted inflation pressures.” Officials also removed an earlier reference to “uncertainties” remaining about the outlook.
Policy makers had been widely expected to leave the target range for the federal funds rate at 1.5% to 1.75% after three straight cuts that helped calm concerns the economy could falter.
Officials forecast their policy remains supportive of growth in coming years — even with the U.S. and China yet to reach a trade deal, Brexit’s future in question ahead of Thursday’s U.K. election and a lackluster global economic picture.
The FOMC repeated in its statement that economic activity has been rising at a “moderate’’ rate with “solid’’ job gains.
The record-long U.S. economic expansion is in its 11th year, a run that has driven unemployment to the lowest level since 1969 even while failing to sustainably deliver inflation at the Fed’s 2% target.
Officials also released new quarterly forecasts. These showed:
- The median estimate for the fed funds rate is at 1.6% at the end of 2020, 1.9% in 2021 and 2.1% in 2022. Thirteen officials expect rates to stay on hold next year, while four see a hike as appropriate.
- The jobless rate is expected to be 3.5% by late 2020, the same as it is now. The long-run unemployment rate is seen at 4.1%, down from 4.2% in the September forecast.
- Economic growth is seen at 2% in 2020 and 1.9% in 2021, both unchanged from the last estimates.
- Inflation is seen hitting 2% in 2021, unchanged from the prior projection.
Powell will mark his second anniversary as Fed chairman in February. He has endured a barrage of attacks from President Donald Trump, who picked him for the job but has labeled Fed policies “ridiculous’’ and “pathetic’’ and called for steeper rate cuts.
Now, after decisively loosening monetary policy following rate hikes in 2018, Powell has a shot at pulling off a soft landing.
While factory gauges suggest that segment of the economy is in a slump, Fed officials say they are counting on consumer spending to keep the expansion going. Wages are rising faster than inflation, and employers continue to add jobs with nonfarm payrolls rising 266,000 in November. Economists surveyed by Bloomberg expect growth to cool next year but remain near to the long-run trend.
The Fed’s rate cuts have hurt the yields of life insurers, retirement savers and others who depend heavily on interest income from bonds. But the cuts have eased borrowing costs and pushed stock prices to record highs, which may support greater spending by boosting wealth and lifting confidence.