Market Overview

Fed Maintains Interest Rates In First Meeting Of 2020

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Fed Maintains Interest Rates In First Meeting Of 2020

In a move that was widely expected, the Federal Reserve maintained its target fed funds rate range of between 1.5% and 1.75% on Wednesday. The Fed also reassured investors the U.S. economy is strong and the labor market remains solid.

“The Committee judges that the current stance of monetary policy is appropriate to support sustained expansion of economic activity, strong labor market conditions, and inflation returning to the Committee's symmetric 2 percent objective,” the Fed said in a statement.

The rate cut comes after the U.S. added 145,000 jobs in December, missing the target of 160,000 jobs economists were expecting. Wage growth was 2.9% in the month, and the U.S. unemployment rate remained unchanged at 3.5%, it’s lowest level in 50 years.

All 10 members voted unanimously to maintain current rates.

Under Pressure

The Federal Reserve has been under pressure from President Donald Trump in the past year to cut interest rates, raising concerns about the Fed’s independence.

“The Fed should get smart & lower the Rate to make our interest competitive with other Countries which pay much lower even though we are, by far, the high standard,” Trump tweeted on Tuesday.

During the Fed’s last interest rate meeting in December, the median target rate on the Fed’s dot plot for year-end 2020 dropped from 1.875% to 1.625%. Thirteen officials anticipate interest rates will not change in 2020, while four are predicting one 0.25% rate hike next year, according to the updated dot plot.

Global Slowdown

The Fed decision comes after global growth rates have been under pressure in recent quarters.

U.S. GDP growth dropped from 2% in the second quarter to 1.9% in the third quarter and is down from 3.1% in 2018. On Wednesday, the Atlanta Fed cut its fourth-quarter U.S. GDP growth estimate from 1.9% to 1.7%.

Earlier this month, the International Monetary Fund cut its 2019 and 2020 global economic growth forecasts from 3% and 3.4% to 2.9% and 3.3%, respectively. The updated full-year 2019 growth estimate represents the slowest pace of global economic growth since the financial crisis in 2008 and 2009.

Sentiment for the SPDR S&P 500 ETF Trust (NYSE: SPY) has taken a hit in the past week, dropping from 73.8% bullish to to just 59.7% bullish, according to StockTwits message data.

Markets React

The SPY traded slightly higher by 0.4% after the Fed announcement.

 

The yield on 10-year U.S. Treasury bonds declined slightly on Wednesday to 1.615%, down 0.026% on the day.

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Posted-In: Interest RatesNews Bonds Econ #s Top Stories Federal Reserve Markets Best of Benzinga

 

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