Fed weighs ‘significant uncertainties’ over global economy
Central bank officials stress rates outlook could shift in either direction
Sam Fleming in Washington
Jay Powell, chair of the Federal Reserve © AP
Federal Reserve officials kept their options open for the next move in interest rates in their latest meeting as they weighed “significant uncertainties” over the US and global economic outlook.
Minutes to the latest Fed meeting in March indicated a high degree of uncertainty over the policy prospects, with some officials stressing their outlook could “shift in either direction” as they seek to determine whether a weak bout of growth will persist.
After raising interest rates four times last year, the US central bank executed a sharp shift in direction in early 2019, shelving prior plans for further rate rises as it moved to a “patient” stance.
President Donald Trump’s willingness to trample over the Fed’s independence with calls for it to cut rates and restart quantitative easing is only adding to the complex outlook policymakers now need to navigate.
In the policy meeting on March 19-20 the Fed held rates at between 2.25 and 2.5 per cent and policymakers trimmed their forecasts for growth this year. Many traders have begun betting that the Fed’s next rates move will be down, and the minutes hinted that this possibility is in the minds of at least some policymakers.
“Several participants noted that their views of the appropriate target range for the federal funds rate could shift in either direction based on incoming data and other developments,” the minutes said.
While most policymakers said rates would probably be kept on hold for the remainder of the year, others still insisted a further upward move was possible.
Treasury and equity prices inched lower following the release of the minutes, as investors responded to the uncertain tone over future interest rate rises, after both markets had seen price increases in the build up to the release.
The benchmark 10-year treasury yield had fallen 4 basis points to 2.46 per cent ahead of the minutes, and rose 2bp to 2.48 per cent shortly afterwards. The S&P 500 edged back from the day’s trading highs, but remained up 0.2 per cent.
Policymakers appeared in the meeting to be broadly sanguine about a recent bout of soggy economic data, with most saying they did not expect the weakness to persist beyond the first three months of the year. But they still expected the growth rate to “step down” from the pace set in 2018, amid factors including a diminishing push from fiscal policy.
Household spending was expected to pick up in the coming months, but the Fed singled out “continued softness” in the housing sector as a worry. Rate-setters dwelled heavily on low inflation, which has remained a persistent conundrum even as US unemployment has sunk to multi-decade lows.
In a lengthy discussion, Fed policymakers theorised that consumer expectations were keeping inflation pinned below the Fed’s 2 per cent target, and that the labour market may not be as tight as headline indicators appeared.
Participants in the meeting talked of a “very flat trajectory” for interest rates reflecting factors including low neutral rates — those rates that are deemed to keep the economy on an even keel.
“Some time would be needed to assess whether indications of weak economic growth in the first quarter would persist in subsequent quarters,” the minutes said. “Members also noted that inflationary pressures remained muted and that a number of uncertainties bearing on the US and global economic outlooks still awaited resolution.”
The central bank also discussed plans to end the reduction of its balance sheet, a process that has been under way since 2017, with policymakers targeting a September end-date. The Fed amassed asset holdings that topped $4.5tn in the wake of the crisis before beginning a very gradual process of allowing the securities to roll off its balance sheet.
Jay Powell, chair of the Fed, last month suggested the central bank would allow its balance sheet to settle at more than $3.5tn later this year — still dwarfing its size before the crisis. In the meeting officials discussed the pros and cons of slowing its balance sheet runoff before reaching the September stopping date.
Additional reporting by Joe Rennison in New York
0 comments:
Publicar un comentario