Fed Signals Rate Hikes May Be Over For 2019

Fed Signals Rate Hikes May Be Over For 2019

Federal Reserve Chair Jerome Powell listens to a reporter's question during a news conference in Washington, on March 20, 2019.

On Wednesday, the central bank cut its growth forecasts, left interest rates unchanged and indicated it won't do any hikes this year.

The yield on the two-year Treasury note held steady at 2.46 percent. And together with the Fed's dimmer forecast for economic growth this year - 2.1 percent, down from a previous projection of 2.3 percent - the statement it issued Wednesday after its latest policy meeting suggests it's grown more concerned about the economy.

Three members predicted two increases, and three others expected three or four.

The initial reaction to the Fed throughout markets was towards more risk-taking, and stocks on Wall Street rallied out of negative territory, lifting a global stocks index.

At the closing bell, the Dow Jones Industrial Average fell 141.71 points, or 0.55 percent, to 25,745.67, the S&P 500 lost 8.34 points, or 0.29 percent, to 2,824.23 and the Nasdaq Composite added 5.02 points, or 0.07 percent, to 7,728.97. Analysts said the Fed's downgraded outlook for the economy might have alarmed investors.

The Fed's decision Wednesday was approved on an 11-0 vote.

It said it would end its balance sheet runoff in September provided the economy and money market conditions evolved as expected.

The 30-year bond last rose 29/32 in price to yield 2.9801 percent, from 3.026 percent late on Tuesday. Policy makers expect to lift rates once in 2020, to 2.6% by the end of that year, and hold them steady in 2021. -China trade talks along with recent indications the US economy is holding up relatively well amid a global slowdown.

The central bank also said it will stop shrinking its bond portfolio in September, a step that would help hold down long-term interest rates.

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With forecasts for slower growth this year, focus will be on signals for future policy moves. But at his news conference, Powell played down that prospect.

"Patient means that we see no need to rush to judgment", he said.

Beginning in October, the Fed will roll its maturing holdings of mortgage-backed securities into Treasuries, using a cap of $20bn per month.

May has only two days to win agreement for her deal to leave the European Union if she wants to go to a summit with the alliance's leaders on Thursday with something to offer them in return for more time.

"Some traders expect the Fed to be a little on the neutral side".

That view is supported by the CME Group, which tracks trading in futures contracts on the Fed's benchmark rate. The dot plot is a graphical figure that predicts the next rate hikes or rate cuts.

The central bank also fixed a second problem hanging over it from December, when Powell roiled markets by saying the reduction of the balance sheet was on "auto pilot".

That message spooked investors, who anxious about the prospect of steadily higher borrowing rates for consumers and businesses and perhaps a further economic slowdown. Direction today will be largely guided by the outcome of the fed meeting. Reports emerged that Trump was even contemplating trying to fire Powell, who had been his hand-picked choice to lead the Fed. By January, the Fed officials had changed tune to "patience".

Powell, appearing last week on CBS's "60 Minutes", denied that pressure from Trump had influenced the Fed's policy shift. Private economists generally agree that a slowing economy and a sinking stock market, which eased Fed worries about any possible stock bubble, were more decisive factors.

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