U.S.: Fed leaves rates unchanged

As expected the Federal Reserve left interest rates unchanged at Wednesday’s meeting and signaled that further cuts in 2020 are less likely than previously thought. The tone of the accompanying statement suggested more confidence about the future, particularly with the addition of the words “is appropriate”. The phrase which specifically suggested that the Fed would be biased towards leaving rates unchanged reads “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 near the Committee's symmetric 2 percent objective.” The statement from the previous meetings had characterized those outcomes as “the most likely…, but uncertainties about this outlook remain.” The dot-plot showing individual Fed member’s projections of the Fed Funds rate suggested no change in 2020. However financial markets are still pricing in one cut in 2020, and we agree, particularly as the economy in H1 may be weaker than consensus views. The dot-plot also suggests that two hikes are likely in 2021, and we would also agree with that since the economy should rebound by then.