U.S Federal Reserve keeps rates unchanged as it sees the U.S economy in a good place

on Dec 12, 2019
Updated: Mar 11, 2020
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  • U.S Federal Reserve chose to keep the rates unchanged in its policy meeting on Wednesday.
  • The FED expressed confidence in the decision of three rate cuts this year.
  • The majority of the policymakers favored the rates to remain unchanged in 2020.
  • Fed Chair, Jerome Powell, says the relation between inflation and unemployment is faint.
  • The forex market responded lucratively to the proceedings of the FED's policy meeting.

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As per the expectations and in line with the previous announcement by the Fed chair, Jerome Powell, the U.S Federal Reserve kept the interest rates unchanged in its policy meeting on Wednesday. The Fed also expressed confidence that the U.S economy is in a good place to sustain the historically low unemployment rate and moderate growth despite the prospect of higher uncertainty due to the 2020 presidential election.  

The U.S Federal Reserve remained poised that its decision of cutting rates three times in a row this year was the right decision to support the economy in the long run, the effectiveness of which is starting to show in the monthly economic data.

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The Majority Of The Policymakers Favored Rates To Remain Unchanged In 2020

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The policy meeting on Wednesday saw Jerome Powell keeping the interest rates within the current range of 1.50% to 1.75%. The current rate is 0.75% lower as compared to the start of the year. The meeting further reported 13 to 17 of the U.S policymakers in favor of keeping the rates unchanged until fiscal 2021, suggesting that the previous disagreements regarding the monetary policy have minimized to a great extent.

The remaining four policymakers saw a need for one hike in interest rates in 2020. The prospect of another rate cut in the upcoming year was not in books for any of the policymakers. Sources from the U.S Federal Reserve also reported that the current rates have found a sweet spot with the dovish policymakers supporting it for an improvement in the job prospects and hourly wages, while the hawkish, seeing it as a tool to contain inflation.

The Fed’s announcement of no further rate cuts in 2020 may not be well received by President Trump who has actively expressed his desire to go negative in the past months.  

Jerome Powell Says The Relation Between Unemployment And Inflation Is Faint

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Currently at 3.5%, the new projections guided that the U.S economy can be expected to sustain this unemployment rate in the next three years, as the inflation aligns itself with the target of 2% annually in the same time period. In an announcement on Wednesday’s meeting, Jerome Powell commented that the current data suggests the relation between inflation and unemployment is fading away, that contributes to minimizing the need for a rate hike.

The forex market responded lucratively to the FOMC press conference. Following the policy meeting, EUR/USD managed to break above the crucial 1.1100 resistance and was seen printing a daily high of around 1.1140. GBP/USD, on the other hand, hiked from 1.3170 level to 1.3220 later in the day.

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