Daily Management Review

US Fed ends softening period


According to the results of the December meeting, the US Federal Reserve System (Fed) left the key rate unchanged at 1.5-1.75% per annum. The regulator also signaled completion of a short period of easing its policy: since July this year, the rate has been reduced by a total of 0.75 percentage points. In its new statement, the Fed abandoned the phrase about the presence of uncertainty regarding forecasts and indicated that the current policy is in line with the regulator’s main objectives. Experts expect a long pause in the Fed's actions, noting that only a worsening of the American economy can interrupt it.

Kurtis Garbutt
Kurtis Garbutt
The US Federal Open Market Committee this time refrained from lowering the rate, keeping it at the level of 1.5-1.75%. Recall that from the end of 2008 to December 2015, the United States, in the framework of the fight against post-crisis recession, had a record low rate of 0-0.25% per annum. Then, over the course of three years, the Fed smoothly raised the rate, bringing it to the level of 2.25–2.5%. In July of this year, citing a slowdown in US economic activity amid external risks and a slow growth in inflation, the regulator lowered the rate by 0.25%, repeating this decision in September and at the end of October.

In its statement, the Fed noted the good state of the labor market and the “moderate” growth in economic activity, while pointing out the weakening dynamics of capital investment and exports.

The regulator also indicated that the current state of monetary policy is in line with the goals of “further growth in business activity, improving the situation on the labor market and maintaining inflation at about 2%,” and promised to monitor the growth of prices and the situation in the global economy. At the same time, the Fed refused the phrase about the presence of uncertainty regarding economic forecasts.

Most market participants expect one rate hike in 2020. However, the Fed itself, according to the updated point schedule, predicts that the current rate will continue until 2021.

According to the regulator’s forecast, the US economy should reach 2.2% this year (2% in 2020, 1.9% in 2021). Inflation (net of energy and food) should grow by 1.6% (1.9% and 2%). The unemployment forecast is 3.6% (3.5% in 2020, 3.6% in 2021). The macro statistics remain mixed, but employment growth in November again turned out to be higher than expected. The growth rate of US GDP in the third quarter was 1.9% versus 2% in the second, but consumption growth slowed down from 4.6% to 2.9%, the decline in investment increased (from 1% to 3%) - the influence of these factors, however was offset by an increase in government spending and real estate investment.

source: bloomberg.com, cnn.com