US Fed Sees No Rate Hike This Year, Cuts GDP Growth View

US Fed Sees No Rate Hike This Year, Cuts GDP Growth View
March 21, 2019

 

The US dollar lost against its competitors yesterday after the Federal Reserve issued a dovish statement at the end of its two-day policy meeting. Even though the outcome of the meeting was along the expected lines, investors still felt that the central bank has become more bearish than in earlier sessions, mainly due to a seeming slowdown of the economy. The greenback, notably, lost a lot of ground against the euro. The EUR/USD pair rallied from a low of 1.1357 to a high of 1.1445 in the past 24 hours, before consolidating at 1.1415 levels.

 

Fed sees no rate hike in 2019

Yesterday, after a unanimous vote, the US Federal Reserve announced a premature end to its three-year ride to tighten monetary policy, dropping estimates for any benchmark rate hikes this year amid clear indications of an economic downturn, and suggesting it would suspend the slow drawdown of its balance sheet.

Specifically, Fed officials said the current method of permitting up to $50 billion worth of treasury and mortgage-backed securities (MBS) to be removed from their $4 trillion balance sheet every month would see a halt by September if the economy develops about as expected.” After September the Fed intends to reallocate the maturing returns in a variety of treasuries.

Powell said, “It is a great time for us to be patient and to watch and wait.”

Chair Jerome Powell affirmed that it is planning only a single rate hike in 2019 and foreseeably none in 2020, according to the latest dot plot of the Fed. The Fed quoted slow economic growth, low inflation, and multiple data points, including household outlay, capital investment, and even jobs, as primary motives for its policy decision.

The Federal Open Market Committee (FOMC), which is scheduled to meet next on the 30th of April, left the benchmark interest rate unchanged in the 2.25% to 2.5% range. Tariffs are forecast to peak at 2.6%, at some point in 2020, about a full percentage point below the historical average for the fed funds rate, which indicates that the US economy has moved into a sluggish period.

Furthermore, the Fed trimmed its outlook for gross domestic product (GDP) growth from 2.3% to 2.1% for 2019. It lowered the PCE (personal consumption expenditure) inflation outlook from 1.9% to 1.8% but left its core PCE forecast at 2%. In spite of the dovish view, the Fed still feels that it will likely raise its benchmark rate to 2.8%, but not until 2021.

The Committee sees consistent economic expansion, a robust labor market situation, and inflation rates close to the 2% target as the probable outcome. The Committee will remain patient given the global financial and economic developments and subdued inflationary pressures as it establishes what future tweaks to the target level for the federal funds rate may be suitable to arrive at these results.

Regarding future rate hikes, Fed Chairman Jerome Powell said “It may be some time before the outlook for jobs and inflation calls clearly for a change in policy. Patient means that we see no need to rush to judgment.”

On the rising levels of debt, Federal Reserve Chairman Jerome Powell believes that it is not an issue that needs urgent attention. Powell’s opinion is based on the fact that the low-interest rates on the debt encourage investors to lend to the US government.

The budget proposal announced this month by the US President Donald Trump visualizes four consecutive years of budget shortfalls topping $1 trillion.

“This is something that we’ll have to deal with,” Powell said at a news conference.

The dovish statement is expected to keep the US dollar weak in the short-term.

Technically, the EUR/USD pair is moving within an ascending channel as shown in the image below. Additionally, the MACD indicator also has a positive reading. Therefore, we can expect the EUR/USD pair to remain bullish in the short-term.

USD - technical analysis - 21st March 2019

Disclaimer: Any financial trading analysis offered here is our opinion and is not intended as advice or direction for investors. We cannot guarantee the success of any trades made as a consequence of this article, and we encourage traders to incorporate a strong money management strategy to limit losses when they enter the markets. Please use this article as part of your own research before formulating strategies prior to trading.

Sammy

Sammy

Sammy is our forex expert, with over 20 years experience in the financial sector, she will be keeping you up to date with the ups and downs of currencies around the world


Related Articles

Soft Retail Sales & Inflation Turn Canadian Dollar Weak

  During the first two weeks of April, the CADJPY pair rallied almost 400 pips to reach 85.80. The optimism

Draghi, Yellen, the Euro and the US Dollar

  The US dollar is on a rise as the Federal Reserve of the United States decision failed to maintain

Yuan Up as US-China Agree To Resume Trade Talks

  The US-China trade talks that got suspended last month have unexpectedly resumed after President Donald Trump had a one-on-one