The Federal Reserve held interest rates steady following its two-day meeting this week and indicated that no action is likely next year amid persistently low inflation.
Concluding a year that saw the central bank take down its benchmark rate three times, the Federal Open Market Committee on Wednesday met widely held expectations and kept the funds rate in a target range of 1.5%-1.75%.
In its statement explaining the decision, the committee indicated that monetary policy is likely to stay where it is for an unspecified time, though officials will continue to monitor conditions as they develop. The decision to keep rates unchanged was unanimous, following several dissents in recent meetings.
“The Committee judges that the current stance of monetary policy is appropriate to support sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee’s symmetric 2 percent objective,” the statement said.
“The Committee will continue to monitor the implications of incoming information for the economic outlook, including global developments and muted inflation pressures, as it assesses the appropriate path of the target range for the federal funds rate,” the committee added.
The language is consistent with recent statements from Fed Chairman Jerome Powell and his colleagues, who have said policy is in “a good place” and likely to remain unchanged as long as current conditions persist.
Those sentiments also were reflected in the likely path forward.
‘Dot plot’ shows no 2020 hike now
Through the “dot plot” of individual members’ future projections, the FOMC indicated little chance of a cut or increase in 2020.
At the committee’s September meeting, individual members were split on what could happen next year, with eight members seeing no change and nine indicating the likelihood of one or more increases. One member even foresaw three hikes. On balance, the estimate then was for at least one hike in 2020.
Wednesday’s projections saw a decided downward shift in the dots, with just four of 17 members anticipating one quarter-point move up in 2020.
There also was a general downward shift for 2021, with the chart pointing to at least one and possibly two increases. The central projection came down for each of the four years included in the committee’s estimates. The median expectation for the funds rate is 1.6% in 2019 and 2020, down from 1.9% in the September estimate, and rising to 1.9% in 2021, compared with the previous estimate of 2.1%. The 2022 projection also came down to 2.1% from 2.4%, though the longer-run estimate remained consistent at 2.5%.
GDP forecast
The more dovish tilt came without any changes in expectations for U.S. economic growth. The committee again projected 2019 to finish with a 2.2% gain in gross domestic product, followed in consecutive years by 2%, 1.9% and 1.8% gains.
Members did reduce their inflation expectations this year.
They now see the core personal consumption expenditures gauge to register just 1.6% growth this year, down from the 1.8% projection in September. They kept their estimates consistent at 1.9% in 2020 and 2% for the following two years.
The committee releases its economic estimates quarterly. While only 10 members vote on rate policy, all 17 FOMC officials have input on the economic and rate projections.
The FOMC operates under a dual mandate of full employment and price stability. Unemployment is running at a 50-year low and job creation is coming off a blockbuster November.
However, inflation has remained stubbornly below the 2% level that the Fed considers healthy. Members in recent weeks have discussed multiple strategies to address the issue, though Wednesday’s statement did not indicate any changes to the Fed’s approach.
The statement also did not elaborate on any matters relative to the upset in overnight repo operations that took place in mid-September. Overnight interest rates spiked following a cash crunch, and the Fed since then has been conducting a series of operations to keep liquidity flowing and to make sure the funds rate stays in the target range.
An implementation note attached to the meeting statement did say the Fed’s offering rate is now 1.45%, down 10 basis points in October.
