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United States Monetary Policy December 2019

United States: Fed keeps rates on hold at final meeting of 2019 and signals status quo in 2020

At its 10–11 December monetary policy meeting, the Federal Reserve’s Open Market Committee (FOMC) voted to maintain its target range for the federal funds rate at 1.50%–1.75%, as had been expected by the majority of our panelists. Moreover, the Bank’s latest dot plot, which tracks the projections for the future rate path, suggests the Fed will keep the target range unchanged in 2020.

The Fed’s move to the sidelines was based on its assessment that its current stance is “well positioned” to support economic growth. The Fed continued to emphasize the strength of the current expansion, highlighting healthy job gains in recent months and strong household spending, despite lingering weakness in manufacturing and business investment. In the accompanying press conference, Fed Chairman Jerome Powell noted that accommodative monetary and financial conditions should buttress resilient private consumption and keep growth near 2.0% in the year ahead, although it should moderate slightly. Moreover, inflation remains benign, continuing to track just below the 2.0% target.

Turning to next year, the Fed signaled it would likely maintain the target range at its current level, according to the median forecast in the latest dot plot. The Fed continued to characterize the economic outlook as favorable and inflation is projected to rise gradually back to target. Accordingly, the Bank reaffirmed its confidence in its current stance and, as Powell remarked in the press conference, that “both the economy and monetary policy right now are in a good place.”

Analysts at Desjardins Group framed the Bank’s latest decision as “the start of a status quo period”. Expanding upon this point, they noted that: “Fed leaders seem particularly comfortable with where key rates are right now, and their forecasts are showing some stability. Under these circumstances, key rates should be stable throughout 2020.”

On the other hand, economists at Danske Bank still foresee the Bank easing rates one more time in the year to come, explaining:

“Our base case remains that the Fed will deliver a fourth cut some time during the spring, which is, however, not a high conviction call. […] We are not expecting the US to head for a recession, but we think the economy is a bit more fragile than the Fed does.”

The next FOMC meeting is scheduled for 28–29 January 2020.

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