Interest rates: the Fed promises to be “patient”

Taux d’intérêt: la Fed promet d’être «patiente»

Photo: Alex Wong Getty Images/AFP
Jerome Powell and his monetary committee have adopted a posture of “dove”, that is to say, more accommodative, as inflation does not give a sign of acceleration.

The u.s. federal Reserve (Fed) left interest rates unchanged Wednesday and promised explicitly that it would be “patient” for future rate hikes, citing the global economic environment that is slowing down and inflation was modest.

In its press release, the monetary committee that describes the u.s. economic activity as “solid” and not ” stronger “, asserts that,” in view of the economic and financial developments and the low inflationary pressure “, it will now be ” patient in determining its future monetary adjustments “.

The rates for the day-to-day are currently between 2.25 per cent and 2.5 per cent.

The slowdown in global growth and the tightening of financial conditions in the markets, therefore, have prompted the monetary committee (FOMC) to include an explicit promise to be patient, which implies a pause in the rate hikes, which should reassure investors.

The press release makes no mention of trade tensions, while negotiations at high risk are held on Wednesday and Thursday with a chinese delegation to try to unblock an impasse that has led to an escalation of tariffs, and that is beginning to concern the industry.

The White House has already imposed customs taxes additional $ 250 billion in chinese imports and threat of increase from 10% to 25% the level of taxes on $ 200 billion of goods imported if the current negotiations do not succeed by the beginning of march.

Beijing retaliated by imposing tariffs additives on $ 110 billion of american goods.

The Fed does not “shutdown” of the government while the country is slowly recovering from this week 35 days of paralysis of the federal administration, which have undermined the morale of the consumers and obscured the visibility of economic.

Last year, the us federal Reserve had raised rates four times and in December, the members of the committee were considering a further two increases of a quarter of a percentage point for 2019.

On Wednesday, the FOMC did not publish new forecasts, but Jerome Powell the president was about to give a press conference.

Another sensitive point, the u.s. central bank is “ready to adjust” the pace of normalization of its balance sheet. These assets (more than 4000 billion dollars in Treasury bonds and mortgage bonds) are so far reduced by ceasing reinvestments in the securities arriving at maturity, at the rate of 50 billion per month.

But this approach seems to have an impact on the increase in the rates, an impact which has made the markets nervous.

The central bank reiterated, however, that the main tool of its monetary influence will remain the rate day-to-day and not the adjustment of the balance sheet of its assets.

A stance accommodative

Jerome Powell and her committee have therefore adopted a posture of ” dove “, that is to say, more accommodative as inflation shows little sign of acceleration, despite a job market that is very dynamic.

The volatility of financial markets since October, the uncertainties related to the iron arms trade with China and the prospect of a slowdown of global growth have made the Fed cautious.

The impact of the partial closure of the administration should be short-lived, as the federal Reserve still says strong consumer spending, but as pointed out by the analysts of Capital Economics, that ” has probably made the Fed even more patient by reducing the information available on the behaviour of the business “.

It will cost $ 11 billion to the economy of the United States, of which approximately $ 3 billion will not be recovered, depending on the service, the Congressional budget (CBO).

The Fed continues to mention the strengthening of the labour market while employment in the private sector have shown again a strong performance in January, with 213 000 jobs, more than predicted by analysts. The government publishes Friday, the official figures of the employment and the unemployment rate is expected to remain stable at its low level of 3.9 %.

For the moment, the Fed is projecting a GDP growth of 2.3% in 2019 instead of 3% in 2018. The IMF is slightly more optimistic 2.5 %.

The members of the monetary Committee were considering in mid-December still two modest rate hikes in the year 2019, but these forecasts will not be revised prior to the month of march.

The economists of the power association of estate agents, which makes the interest rate increase by the Fed partly responsible for the slowdown of the market, they said on Wednesday that the u.s. federal Reserve “will probably rate only once” (one-quarter of a percentage point) this year, ” maybe even not at all.”

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