US Federal Reserve surprisingly ends rate hike cycle, says no more interest rate rises this year
- Federal Reserve message more ‘dovish’ than expected, as worries about economic outlook cause central bank to rein in policy tightening
- Fed also announces it will end its plan to sell off its securities portfolio in September, a further step back from Fed’s policy tightening
The US Federal Reserve on Wednesday brought its three-year drive to tighten monetary policy to an abrupt end, abandoning projections for any interest rate hikes this year, amid signs of an economic slowdown, and saying it would halt the steady decline of its balance sheet in September.
The measures, announced following the end of a two-day policy meeting, mean the Fed’s gradual and sometimes fitful efforts to return monetary policy to a more normal footing will stop well short of what was foreseen in late-2015, when the central bank first moved rates from the near-zero level adopted in response to the 2007-2009 financial crisis and recession.
Having downgraded their US growth, unemployment and inflation forecasts, policymakers said the Fed’s benchmark overnight interest rate, or fed funds rate, was likely to remain at the current level of between 2.25 per cent and 2.50 per cent at least through this year, a wholesale shift of their outlook.
Rates are now seen peaking at 2.6 per cent, 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.
In contrast to projections through much of last year, Fed policymakers no longer see the need to move rates to a “restrictive” level as a guard against inflation, which remains lodged below the central bank’s 2 per cent target.