Fed Sees No 2019 Hikes, Plans September End to Asset Drawdown

Fed Sees No 2019 Hikes, Plans September End to Asset Drawdown

Fed Sees No 2019 Hikes, Plans September End to Asset Drawdown

Markets expect the Fed to strike a dovish tone when it meets this week, and bets on an interest rate cut have increased after weaker-than-expected manufacturing data on Friday.

The 10-year Treasury yield dropped as low as 2.53 percent, down from 2.61 percent late Tuesday and from 3.20 percent late last year. Redemptions of mortgage-backed securities would at that point be reinvested in Treasuries up to as much as $20 billion per month, moving the Fed generally toward a Treasuries-only approach to its assets.

In a move that was widely expected, policymakers at the USA central bank unanimously agreed to leave interest rates unchanged in light of global economic and financial developments, as well as muted inflation.

He also criticised the Fed's decision to signal no more rate hikes in 2019, something he would have cautioned against were he still sitting at the table. The initial investment in new Treasury maturities will "roughly match the maturity composition of Treasury securities outstanding", the Fed said. On Tuesday, it fell 0.2 per cent to 96.415 The Australian dollar has gained the most from the USA dollar's retreat.

"We foresee some weakening, but we don't see a recession", Federal Reserve Chairman Jerome Powell said Wednesday in a press conference.

Those headwinds contributed to sharp financial-market volatility late past year.

President Donald Trump, injecting himself not for the first time into the Fed's ostensibly independent deliberations, made clear he wasn't happy, calling the December rate hike wrong-headed. "As long as they are holding meetings, many things will work out". Wednesday marked policy makers' first opportunity since December to lay out in quarterly forecasts the extent to which their projections for hikes have changed.

The central bank warned that "growth of economic activity has slowed from its solid rate in the fourth quarter".

Among commodities, oil prices were little changed after hitting 2019 highs, maintaining recent strength on the back of expectations for producer club OPEC to continue production cuts. "Overall inflation has declined", though excluding food and energy it "remains near 2 per cent", the central bank said. "The question for the market remains whether or not the four rate hikes from past year and the unwinding of the balance sheet at the same time could be continuing, even now, to tighten financial conditions".

Rates are now seen peaking at 2.6 percent, sometime in 2020, roughly a percentage point lower than the historic average for the fed funds rate and a sign that the US economy has entered a more sluggish era.

The median economic growth forecast for this year is likely to be cut to 2.2 per cent from 2.3 per cent in December, and the unemployment rate forecast could edge higher. Viacom lost 4.7 per cent and Discovery gave up 3.2 per cent.

Policymakers slightly lowered their expectations for inflation relative to their last set of economic projections.

Some analysts say they think the Fed won't raise rates at all this year if the outlook becomes as dim as they are forecasting.

Officials see unemployment at 3.7 per cent by year-end, higher than their previous estimate of 3.5 per cent.

General Mills turned in a good quarter and was up 4 per cent.

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