Fed Maintains Target Rate, Dot Plot Increasingly Dovish

New York Stock Exchange

New York Stock Exchange

In the U.S., FedEx -5.1% after missing quarterly earnings estimates and lowering its full-year EPS guidance below consensus while warning of slowing worldwide macroeconomic conditions and weaker global trade growth trends.

All three major USA stock indexes started the session in the red, but the S&P 500 and the Nasdaq turned positive after the release of the policy-making Federal Open Market Committee's statement.

US stocks have posted solid gains this year with the three major indexes up at least 10 percent so far, in large part because the Fed said in January it would be "patient" in raising rates.

Traders expect no rate hikes this year and some are even building in bets for a cut in 2020.

The FOMC also chose to slow the pace at which it reduces its securities holdings - including Treasury notes and mortgage-backed securities - built up to US$4.5 trillion in the years after the 2008 global financial crisis. At least nine of the Fed's 17 policymakers reduced their outlook for the fed funds rate, a comparatively large number.

"It may be some time before the outlook for jobs and inflation calls clearly for a change in policy", Federal Reserve Chairman Jerome Powell told reporters following the announcement.

"Patient means that we see no need to rush to judgment", Powell said.

The Federal Reserve sent a strong signal the USA economy is slowing, indicating Wednesday it will not raise the benchmark lending rate again this year amid a drop in spending and broader global uncertainty.

But JPMorgan Chase chief economist Anthony Chan told FOX Business he is predicting the US economy may not be as strong in 2019 compared to 2018 given some weakness in economic forces. "The question for the market remains whether or not the four rate hikes from a year ago and the unwinding of the balance sheet at the same time could be continuing, even now, to tighten financial conditions".

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"It definitely skewed on the dovish side of expectations", said Evan Brown, head of macro asset allocation strategy at UBS Asset Management in NY.

The news is likely to be welcomed by President Donald Trump, who in recent months has cast the Fed as "crazy" for continuing to boost interest rates.

The Fed is getting just a little more wary about economic prospects.

The combined announcements mean that, after tightening monetary policy with two levers at once over the past year, the Fed is now pausing on both fronts to adjust to weaker global growth and a somewhat weaker outlook for the USA economy.

JPMorgan Chase Chief Economist Anthony Chan on USA trade negotiations with China and the state of the US economy. "It's a great time for us to be patient".

PRESSURE DROP: Treasury yields sank sharply following the Fed's announcement, and the 10-year yield touched its lowest level in more than a year. The dollar weakened broadly against major trading partners' currencies.

Joe Manimbo, senior market analyst at Western Union Business Solutions in Washington, said: "The Fed exceeded markets' dovish expectations, which took a toll on the greenback".

"If you start with the notion that the economy is already decelerating, easier monetary policy is better for growth than the alternative", said Ibrahiim Bayaan, FreightWaves Chief Economist. Bloomberg data shows a zero percent chance the Fed raises rates this year and a 27.7% probability of a 25-basis-point cut.

Economic growth "has slowed from its solid rate in the fourth quarter", the FOMC said in its statement.

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