The chances for more rate rises in the US this year have been reduced dramatically after a change of heart by the US Federal Reserve.
The Fed has hauled back on its rate rise program and says it will now be “patient” in setting future interest rate levels after leaving the Federal Funds Rate unchanged at 2.25% to 2.5%.
The US central bank dropped language suggesting further rate rises are coming and rather than describing the pace of US economic expansion as “strong” as it did in its December statement, it said the economy was expanding at a ’solid’ pace.
The Fed dropped wording from the previous statement saying it “judges that some further gradual increases” in rates were merited
And the Fed indicated that it will adjust the size of its balance sheet (it is reducing its size as it winds back its huge program of quantitative easing) if necessary. There had been suggestions the bank was thinking of easing back on its program of balance sheet reduction to help market confidence.
The Federal Open market Committee voted 10-0 for the new approach.
The last statement for 2018 in December had seen the Fed suggest there could be two more rate rises in 2019 – now that is in doubt.
“The Committee continues to view sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee’s symmetric 2 percent objective as the most likely outcomes,” the Fed’s statement read.
“In light of global economic and financial developments and muted inflation pressures, the Committee will be patient as it determines what future adjustments to the target range for the federal funds rate may be appropriate to support these outcomes.
“In determining the timing and size of future adjustments to the target range for the federal funds rate, the Committee will assess realized and expected economic conditions relative to its maximum employment objective and its symmetric 2 percent inflation objective.
“This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments,” the statement read.
