Federal Reserve foresees no interest rate hikes in 2019
WASHINGTON — The Federal Reserve left its key interest rate unchanged Wednesday and projected no rate hikes in 2019, reflecting a dimmer view of the economy as growth weakens in the United States and abroad.
The Fed said it was keeping its benchmark rate — which can influence everything from mortgages to credit cards to home equity lines of credit — in a range of 2.25 percent to 2.5 percent. It also announced that it will stop shrinking its bond portfolio in September, a step that should help hold down long-term rates. It will begin slowing the runoff from its bond portfolio in May.
Combined, the moves signal no major increases in borrowing rates for consumers and businesses. And together with the Fed's dimmer forecast for economic growth this year — 2.1 percent, down from a previous projection of 2.3 percent — the statement it issued Wednesday after its latest policy meeting suggests it's grown more concerned about the economy. What's more, with inflation remaining mild, the Fed feels to pressure to tighten credit.
The Fed's decision was approved on an 11-0 vote.
With the prospect of no rate hikes ahead anytime soon, the stock market reversed losses it had suffered before the Fed issued its statement and was up slightly soon afterward. Stock prices have been surging since early January, when Chairman Jerome Powell abruptly reversed course and made clear the Fed was in no hurry to raise rates and would likely slow the runoff from its balance sheet.
In the bond market, Treasury yields sank sharply, with the 10-year yield touching its lowest level in more than a year. Yields have been falling since November as worries rose about a weaker global picture and a more patient Fed. On Wednesday, the 10-year Treasury yield dropped as low as 2.53 percent, from 2.61 percent late Tuesday and 3.2 percent late last year.
In signaling no rate increases this year, the Fed's policymakers reduced their forecast from two that were previously predicted in December. They now project one rate hike in 2020 and none in 2021. The Fed had raised rates four times last year and a total of nine times since December 2015.
The Fed's policymakers have clearly settled on the belief that more than a decade after they cut their benchmark rate to a record low near zero — and kept it there for seven years — that rate has now reached what's called "neutral": neither stimulating nor restraining economic growth.
The Fed's pause in credit tightening is a response, in part, to slowdowns in the U.S. and global economies. It says that while the job market remains strong, "growth of economic activity has slowed from its solid rate in the fourth quarter."
Some Fed watchers say they think the next rate move could be a cut later this year if the economy slows as much as some fear it might. The policymakers' statement stressed, as they have in recent weeks, that given sluggish growth and continually mild inflation, the Fed "will be patient as it determines what future adjustments to make" to rates.
The Fed laid out a plan for stemming the reduction of its balance sheet: In May, it will slow its monthly reductions in Treasurys from $30 billion to $15 billion and end the runoff altogether in September. Starting in October, the Fed will shift its runoff of mortgage bonds into Treasurys so its overall balance sheet won't drop further.