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US Fed says will focus on low inflation, global economy


Published : Dec. 12, 2019 - 09:00

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WASHINGTON (AFP) -- The Federal Reserve kept its key lending rate unchanged on Wednesday but said it will turn its sights to low inflation and developments in the world economy.

That was a signal that central bankers, who have repeatedly pledged to change course if needed, are monitoring the global slowdown and persistent absence of price pressures, which could open the door to further rate moves.

At its final meeting of 2019, the Fed's policy-setting Federal Open Market Committee left the benchmark interest rate in the target range of 1.5-1.75 percent, as expected, where it has been since the third rate cut of the year in October.

The vote this time was unanimous, following several meetings where one or more FOMC members dissented.

The decision, though widely expected, is unlikely to please President Donald Trump who has repeatedly berated the Fed and called on its Chairman Jerome Powell to slash rates to zero to supercharge the US economy, which Trump says is at a disadvantage against foreign economies with lower rates.

Powell again said officials will wait to see the effects of the stimulus provided this year, adding that he expects the current stance to "remain appropriate" until something happens to "materially" change the outlook.


"Our economic outlook remains favorable despite global developments and ongoing risks," Powell told reporters.

"We believe that monetary policy is well-positioned to serve the American people."

In a key change to the policy statement, the FOMC highlighted "global developments and muted inflation pressures" as factors it will be closely monitoring.

The statement notes that despite robust household spending, business investment and exports remain weak.

Resolving trade uncertainties

Powell said resolving trade uncertainties, especially related to China, would have a positive impact on the economy.

The impact of a deal to end the trade dispute with China is of a bigger magnitude than the update of the regional free trade agreement with Canada and Mexico reached this week, he said.

On China, where a new round of tariffs are due to hit next week, Powell said, "Without commenting on the process or the content of the agreement, I think that removal of uncertainty around that would be a positive for the economy."

Trump's trade war with China has eroded the environment for American businesses, which for over a year have reported curtailing investment, while US manufacturing has fallen into recession.

As the tariff battle rages some prices have been distorted, and exports of farm goods in particular have suffered. But even so, and despite unemployment at a 50-year low of 3.5 percent, US price pressures have not appeared.

That has baffled Fed policymakers but also allowed them to lower interest rates to keep the record 11-year US economic expansion going, even as key economies worldwide slow.

Noting a structural change in the US economy, Powell said it is a "good thing" the Fed no longer has to be so concerned about strong labor markets, which produced a 3.5 percent unemployment rate.

"The need for rate increases is less," he said.

"We have learned that unemployment can remain at quite low levels for an extended period of time without unwanted upward pressure on inflation."

For now, the Fed's benchmark interest rate "is appropriate and will remain appropriate" until there is a change in the outlook, he said.

"In order to move rates up, I would want to see inflation that is persistent and that is significant," Powell told reporters.

There were few surprises in the Fed's quarterly economic forecasts released Wednesday, with the policy interest rate expected to remain steady in 2020 and end the year at a median of 1.9 percent.

Fewer central bankers now lean towards a rate hike next year.

Inflation and growth are expected to hold steady around two percent for the next two years, while unemployment is seen holding around the current 3.5 percent level. (AFP)

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