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FRS signals the end of interest rate growth :: Investor.bg



The Fed has signaled the end of interest rates.

Photo: Reuters

According to CNBC, the Federal Reserve decided to leave interest rates unchanged at its two-day meeting and promised that future changes in monetary policy would be carried out patiently in terms of the development of economic conditions.

Bankers from the central bank unanimously voted to keep interest rates between 2.25% and 2.5%.

In a statement after a two-day meeting, the Federal Reserve stated that economic growth remains "steady" and expects continued growth.

In the current Fed statement, there is no phrase that has been constantly present over the past few years, namely “further gradual increase” in interest rates. Now this expression has been replaced by a “more cautious approach.” This means that the Fed is ready to either increase or lower interest rates in accordance with economic conditions, international media reported.

Strengthening its cautious tone, the Fed also announced that it was ready to delay or even stop cutting its bond portfolio. This is also a significant change. In December, the Fed said it intends to steadily reduce its portfolio.

From the information on the Federal Reserve website, it is clear that a possible reduction in the central bank's bond portfolio will be considered, if conditions so require.

"In the light of global economic and financial prospects and weak inflationary pressure, the Fed will patiently determine interest rates in the future," the statement said.

This step takes place after a stormy market reaction, which began in early October. Then the head of the Fed, Jerome Powell, said that the central bank is far from a neutral interest rate increase. This shook Wall Street and sent the markets in a spiral that quickly brought them to the territory of the swords.

The reaction of investors was negative when in December the Fed made it clear that in 2019 there would be two increases in interest rates. Markets calmed down only when Fed officials, including Paul, said that the central bank would be patient and flexible in its approach to raising interest rates.

The fundamentals of the US economy remain strong, said the Federal Reserve in the so-called Beige Book, which was published earlier this month. Unemployment in December was only 3.9%, while wages increased by 3.2% in 2018. Consumer price growth remains weak. After excluding the variable components of food and energy, core inflation, the Fed's preferred figure, grew only by 1.9% in November compared with the previous year. Core inflation excludes volatile food and fuel prices, as well as regulated prices such as electricity.

Central banks and market analysts expect a slowdown in 2019, but will remain strong and will continue to create jobs and maintain low unemployment.

The Fed lowered its forecasts for US economic growth and inflation in 2018 and 2019 at the December meeting. At present, economic growth is expected to be 3% in this and 2.3% in 2019, respectively 3.1 and 2.5% at the September meeting. The Federal Reserve predicts that inflation in 2018 and 2019 will be 1.9%. For comparison, previous estimates showed 2.1 and 2%, respectively, for this and the following year.

The central bank raised interest rates four times last year amid steady economic growth and unemployment, which reached its lowest level in the last half century.


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