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Fed sees no reason to alter rates

03 May 2019

Federal reserve chair Jerome Powell notably maintained that the Fed "don't see a strong case for moving in either direction" after assessing the solid economic activity, strong labour market and below-target inflation.

"On a 12-month basis, overall inflation and inflation for items other than food and energy have declined and are running below 2 percent", said the Fed.

Investors had been betting on the Fed to signal an interest rate cut due to the recent bout of weak inflation in the US- but their hopes were dashed by Mr Powell's comments.

"If we did see inflation running persistently below [the target], that is something that we would be concerned about and something that we would take into account in setting policy", he said.

US stocks were set for modest gains.

"So ultimately, they will have to begin raising rates again to keep inflation contained". Moore, when he's not calling for the president to fire Powell (whom Trump named to the job less than two years ago) has been calling for steep cuts in interest rates. The IOER rate gives the Fed an additional tool for the conduct of monetary policy. "I think we probably have another, let's say, 10, 15, 20% to run", Minerd says. For all the intense political pressure to ease policy and the mixed growth/inflation data, the US central bank held the line on Wednesday and refused to signal anything other than it was still on pause.

In addition, the resolution of the uncertainty around trade negotiations would be positive for business sentiment, he said.

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The meeting came after the Department of Commerce reported last week that the US economy expanded at an annual rate of 3.2 percent in the first quarter, mostly driven by strong exports and private inventory investment. The surprise growth marked the fastest first-quarter pace in four years.

Powell's comments on Wednesday that a decline in inflation this year could be due to transitory factors dampened some investors' hopes that the USA central bank could move later this year to cut interest rates, market watchers said.

Trump repeatedly has criticized the central bank for keeping the rates high.

"We have the potential to go up like a rocket if we did some lowering of rates, like one point, and some quantitative easing", he continued.

In commodities markets, the drop in oil prices came after US crude production output set a new record, though the losses were capped by the intensifying crisis in Venezuela and the stopping of Iranian oil sanction waivers by Washington. In March, the central bank indicated that it likely was done with increases for the rest of this year. If Powell can't find the right language to explain the Fed's moves, people might draw a number of conclusions, from assuming that the Fed has capitulated to the President's whims, to predicting that the economy is in trouble.

Higher interest rates increase the opportunity cost of holding non-yielding bullion and can boost the USA dollar, making gold costlier for investors holding other currencies. The Fed said it took to move to help keep rates within the target range. It did state, however, concerns over inflation, which could lead the central bank to reduce rates in the future. The central bank, however, changed its course this year.

Fed sees no reason to alter rates