Fed sees no 2019 rate hikes, plans September end to asset drawdown

Fed sees no 2019 rate hikes, plans September end to asset drawdown

The shift toward a more hands-off Fed and away from a policy of steadily tightening credit has encouraged the view that the central bank is done raising rates for now and might even act this year to support rather than restrain the economy.

The Federal Reserve voted to keep the benchmark federal funds rate steady during its second policy meeting of the year on Wednesday, also signaling that there will be no hikes for the remainder of 2019.

The median economic growth forecast for this year is likely to be cut to 2.2 per cent from 2.3 per cent in December, and the unemployment rate forecast could edge higher.

Analysis of the so-called "dot plot - where members of the Fed's Federal Open Market Committee indicate where they expect interest rates to move to - also revealed that they anticipate only one increase in 2020".

The Fed detailed its long-awaited pledge to slow the monthly reduction of its holdings of Treasury bonds from up to $US30 billion ($42 billion) to no more than $US15 billion beginning in May.

"Powell's suggestion that the Fed is on hold this year is important", she said.

Federal Reserve Chairman Jerome Powell says the central bank has no bias in whether its next move is up or down, but his colleagues may deliver a more hawkish message.

The Fed's policy statement was unanimous.

The projections showed 11 of 17 officials saw no hikes this year, while four expected one rate increase and two people projected two hikes.

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Sit Fixed Income Senior Vice President Bryce Doty on the impact of the Federal Reserve and US trade talks with China on the markets.

Oil prices were firm, supported by supply cuts led by producer club OPEC as well as US sanctions against Iran and Venezuela, though gains were limited by concerns over global economic growth. "It's a great time for us to be patient".

Stocks across the globe rose for a seventh straight session on Tuesday despite late selling on Wall Street, while the pound wobbled against the dollar as traders expected European Union officials would allow Britain a delay on Brexit.

"What we are seeing is the market positioning for potentially a more dovish tone tomorrow", said Minh Trang, senior currency trader at California's Silicon Valley Bank, speaking about expectations of what the Fed's statement will be like on Wednesday.

So even as the president and his administration try to cheer the success of his economic policies - most notably, the 2017 tax cut - the independent experts at the Fed, led by his hand-picked chair, disagree with their rosy predictions. That sent bond yields down to the lowest they've been in more than a year.

The forecasts could throw cold water on investors' expectations that the Fed has ended rate hikes.

"Growth of economic activity has slowed from its solid rate in the fourth quarter" of 2018, the committee said in a statement. In addition to the growth slowdown, the unemployment rate for 2019 is forecast at 3.7 percent, slightly higher than forecast three months ago.

Inflation for the year is now seen at 1.8 per cent, compared to the Fed's forecast in December of 1.9 per cent.

Policymakers highlighted February's sluggish pace of hiring - only 20,000 jobs were added - as well as a slowdown in household spending and business investment.

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