Federal Reserve keeps rates unchanged
The US central bank said Wednesday, after its monetary policy committee, that it did not change its key rates, now between 1.50 and 1.75%. A decision widely anticipated by the financial markets, which expect above all from the Fed to clarify its policy of injecting liquidity into the money market.
The suspense was limited. The Federal Reserve (Fed) said Wednesday, after its monetary policy committee, that it did not change its key rates, today located in a range between 1.50 and 1.75%. A decision widely anticipated by the financial markets, and which comes after the drop of 0.75 points made between July and October. The decision was made by consensus of all committee members.
While the number of US growth in the fourth quarter will be released on Thursday, economists expect a figure around 2.1% annualized, like the previous quarter. And according to the consensus of analysts, the activity would have grown by 2.2% in the United States for the whole of 2019. The end-of-year growth would have been more largely fueled by the drop in imports and of a residential investment than through household consumption, which has been a powerful engine of the US economy, say some economists.
Liquidity injection The financial markets are especially waiting, during Jerome Powell’s monthly press conference on Wednesday afternoon in Washington, for details on his liquidity injection policy. To facilitate very short-term loans between financial institutions, seized up since last September, the central bank injects around \$ 60 billion per month and anticipates continuing its interventions, at least until the second quarter. The monetary policy committee thus indicates that the “repo” operations will last at least until April.
The markets are still betting on keeping rates at the current level for several months. Donald Trump, who tirelessly asks Fed President Jerome Powell to lower rates in order to boost the economy – and the stock market – now judge that this would also help finance the immense federal debt that is accumulating under the weight of tax cuts and public spending.
The monetary policy committee will also closely monitor developments in the economy. The agreement signed between Washington and Beijing in mid-December mainly offered a respite from the trade dispute, by suspending the planned increases in customs duties which could have curbed American consumption. But the cessation of production of the Boeing 737 Max could weigh on growth in the coming quarters, as began to quantify the largest suppliers of the aircraft manufacturer. And the impact of the coronavirus in China remains difficult to measure. The next decisive meeting of the monetary policy committee will take place on March 18.
Véronique Le Billon (New York Office)