US Fed leaves rates unchanged, signals policy will continue through 2020

The Federal Reserve left interest rates unchanged and signaled it would stay on hold through 2020, keeping it on the sidelines in an election year while also opening the possibility it might buy short-term coupon-bearing securities to ease money-market strain.

“Our economic outlook remains a favorable one despite global developments and ongoing risks,” Chairman Jerome Powell told a press conference Wednesday in Washington following the decision. “As long as incoming information about the economy remains broadly consistent with this outlook, the current stance of monetary policy likely will remain appropriate.”

The Treasury 10-year yields fell below 1.8%, the dollar declined and US stocks edged higher. Powell spoke after the Federal Open Market Committee held the target range of the federal funds rate steady at 1.5% to 1.75% and its median forecast showed no rate change through next year.

“The FOMC’s monetary policy message is that the Fed is on hold and that it would take some significant change in the outlook to induce the Fed to move,” Roberto Perli, a partner at Cornerstone Macro LLC in Washington, wrote in a note. “Powell, however, made some news when talking about the problems affecting the repo market.”

Powell told reporters that the committee might consider widening reserves management-related Treasuries purchases to include short-term coupon-bearing securities, if necessary, to ease liquidity strains in money markets.

The Fed, in its first unanimous vote since May, said it will continue to monitor the implications of data for the economic outlook “including global developments and muted inflation pressures.” Officials also removed an earlier reference to “uncertainties” remaining about the outlook.

Powell reinforced the message, telling reporters that “both the economy and monetary policy right now are in a good place.”

Policy makers had been widely expected to leave rates on hold after three straight cuts that helped calm concerns the economy could falter. Officials forecast their policy remains supportive of growth in coming years -- even with the US and China yet to reach a trade deal, Brexit’s future in question ahead of Thursday’s UK election and a lackluster global economic picture.

What Bloomberg Economists Say

“The Federal Reserve is keen to remove itself from election-year economic developments, and reinforced this message by raising the threshold for interest-rate action anytime soon. Policy makers are still concerned by below-target inflation and global risks, but they are increasingly confident that the policy adjustment incorporated since July will be sufficient to stabilize growth, unemployment and inflation at desirable levels.”