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Fed keeps rates unchanged, preaches patience

Federal Reserve policymakers held the line on interest rates as expected on Wednesday, and further signaled that they would take a less aggressive stance in 2019.

Fed Chairman Jerome Powell told reporters after the committee’s two-day meeting that “the case for raising rates had weakened somewhat,” and the Fed had cause to be patient.

fedpatience“The U.S. economy is in a good place and we will continue to use our monetary policy tools to help keep the jobs picture strong,” Powell said. The U.S. economic growth was likely to slow from an exceptionally strong 2018, however, while inflation remained in check, Powell noted. Also, the economies have slowed in China and Europe, and the U.S. economy may be impacted by Britain’s exit from the European Union (Brexit), and the effects of the record 35-day partial government shutdown, which ended this past Friday. He also said consumer confidence has deteriorated somewhat.

“In light of global financial developments and muted inflation pressures, the committee will be patient as it determines what future adjustments to the target range for the federal funds range may be appropriate.”

The Federal Open Market Committee (FOMC) kept rates in the range of 2.25 percent to 2.5 percent. In December, the FOMC raised rates by a quarter percentage point, the fourth increase in 2018.

Mortgage Bankers Association Chief Economist Mike Fratantoni said the Fed’s move didn’t come as a surprise.

“Before this meeting, several Fed officials had clearly signaled that the data on the economy, particularly with respect to inflation, allows them to be more patient with respect to future rate hikes, even though the level of the fed funds target remains below what may be the ‘neutral’ rate,” Fratantoni said. “Today’s statement, as expected, reiterated this patient, data-dependent stance.”

In another key move, the Fed indicated that it could adjust the pace that it has been rolling off its massive reserves of mortgage-backed securities (MBS) from its balance sheet. Fratantoni said the Fed may change the pace of the run-off, or change the composition of the portfolio, but the Fed didn’t provide any specific details in its statement.

“In the December minutes, there was a hint that they might sell some MBS in the future, in an effort to move the Fed holdings back to predominantly Treasury securities,” Fratantoni said.


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