Federal Reserve hikes Rate And Lowers The 2019 Projections To Two Rises

Federal Reserve hikes Rate And Lowers The 2019 Projections To Two Rises

In September, Fed officials collectively forecast that they would raise rates three times in 2019. Adding to gold's appeal was a weaker dollar, with the U.S. unit pressured by bets that the Fed would hint at plans to rein in interest rate hikes for 2019/2020.

With the Fed under pressure to ease its tightening trajectory, gold could benefit in 2019 if the US central bank obliges. Wall Street dipped sharply on Wednesday following the Fed's statement.

The Fed's move came despite President Donald Trump's attacks in recent weeks on its rate hikes and on Powell personally. As a result, like many economists, he predicts that the Fed will raise rates only twice next year.

"Maxwell Gold, director of investment strategy at Aberdeen Standard Investments, said that growing uncertainty in financial markets could force the Federal Reserve to slow down tightening of monetary policy next year", reports Kitco News. Market participants were braced for a rate decision by the central bank at 2 p.m. EST (1900 GMT) after its final two-day policy meeting of the year.

Any deviation from that plan going forward could be read as a sign of Powell caving to Trump and spark a wild selloff by stoking concerns that even the Fed thinks the economy is turning south.

For now, most USA economic barometers are still showing strength. Contributing to this view was a speech Powell gave last month in which he suggested that rates appear to be just below the level the Fed calls "neutral", where they're believed to neither stimulate growth nor impede it. Powell's observation suggested that the Fed might be poised to soon slow or halt its rate hikes. Consumers, the main driver of the economy, are spending freely. It's now likelier, as Powell said at his news conference, to suit its rate policy to the latest economic data - to become more flexible or, in Fed parlance, "data-dependent". In one of them, he called it "incredible" that the Fed would consider raising rates again when "the outside world is blowing up around us".

By looking at the meeting, Committee has been looking for three different moves in the year 2019 while another one by the year 2020.

The Fed has increased the key lending rate eight times since December 2015, bringing it up to 2.25 percent after a long stretch at zero in the wake of the global financial crisis. In doing so, the Fed is signalling that it doesn't need to tighten credit much further to keep the economy from overheating.

In their statement, policymakers made clear they are attuned to global and financial headwinds facing the USA economy, and said they would continue to monitor developments and the impact on their outlook going forward.

In its updated outlook, the Fed lowered its forecast for growth next year to 2.3 per cent from the 2.5 per cent it foresaw three months ago. They had previously predicted economic growth to be 3.1% and 2.5% for 2018 and 2019. Those estimates are far below the Trump administration's insistence that its tax cuts would help accelerate annual growth to 3 per cent in coming years.

But with increasing signs the USA economy may have peaked causing stock markets to crumble in recent weeks, what analysts and investors are looking for is confirmation the central bank will stand on the sidelines for a time. From China to Europe, major economies are weakening. Trump's trade conflict with Beijing could, over time, undermine the world's two largest economies. The benefit of that stimulus will likely fade in 2019, slowing growth to a more modest pace.

Lower interest rates reduce the opportunity cost of holding non-yielding bullion and weigh on the dollar. "I think the economy will remain strong enough that unemployment will fall further and wage pressures will rise".

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