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Fed next move only in 2021! Key takeaways from Dec rate setting

As many as 13 officials expected status quo next year, while four saw a hike.

, ETMarkets.com|
Dec 12, 2019, 11.13 AM IST
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Policymakers at the US central bank are now looking at only one rate move in 2021 and another in 2022.
NEW DELHI: The Federal Reserve held interest rates steady in its final policy meeting of the calendar and signalled no changes in 2020 amid strength in the economy and persistently low inflation.

Policymakers at the US central bank are now looking at only one rate move in 2021 and another in 2022. As many as 13 officials expected status quo next year, while four saw a hike.

The central bank’s rate-setting committee was unanimous for the first time since May in keeping the benchmark overnight lending rate between 1.50 per cent and 1.75 per cent.

“The committee judges that the current stance of monetary policy is appropriate to support sustained expansion of economic activity, strong labour market conditions and inflation near the committee’s symmetric 2 per cent objective,’’ the Federal Open Market Committee said in a statement.

Fed Chairman Jerome Powell in a post-policy media interaction said the three interest rate cuts effected during 2019 have supported the economy.

Here are key pointers for Dalal Street investors from the Fed money policy:

Policy ‘appropriate’
Powell told reporters that “the current stance of monetary policy will likely remain appropriate.” He said both the economy and monetary policy were in a good place. In the policy statement, the Fed dropped the reference to
‘uncertainties’ over US growth outlook.

Traders see a rate cut in 2020
US short-term interest rate futures were slightly lower on Wednesday after the Federal Reserve held interest rates steady, Reuters reported. After the policy announcement, bets placed in futures contracts tied to the Fed's policy rate continued to reflect expectations that the central bank will leave rates where they are until next September, when it will, in the view of traders, deliver another rate cut to shore up economic growth.

Fed’s great expectations
The central bank expects US growth to hit 2 per cent in 2020 and then cool down slightly to 1.9 per cent in 2021. Inflation, which has remained persistently lower than the Fed’s target, is seen hitting the 2 per cent level in 2021.
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