Fed Sees No More Hikes Until 2020

Yen benefits as dollar faces expectations for an accommodative Fed

The decision to pause rate increases comes amid a significant downward revision to gross domestic product (GDP) growth projections: the Fed said it now expects the USA economy to grow at a rate of 2.1 percent this year, lower than the 2.3 percent it had projected at the December meeting.

After a two-day meeting in Washington, policymakers unanimously voted to keep the USA interest rate range unmoved between 2.25pc and 2.5pc, changing the initial outlook from two hikes in 2019 to none.

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.

The Federal Reserve's Open Market Committee on Wednesday left its target rate unchanged at 2.25 percent to 2.5 percent. Powell also said that the Federal Reserve would slow its balance sheet runoff in the middle of this year and cease it altogether in the fall.

Oil prices fell after touching their highest in 2019.

Federal Reserve Chairman Jerome Powell testifies before the Senate Banking Committee on February 26.

"Powell's suggestion that the Fed is on hold this year is important", she said.

Three other issues could have also played a role in the Fed's choice of policy guidance that is more dovish than the US economic outlook would justify.

The Federal Reserve is becoming more anxious about the USA economy, citing slower consumer and business spending.

Bond prices rose sharply Wednesday after the Fed forecast slower economic growth.

"The Fed no longer has an appetite for tightening rates above" a level that would slow the economy, Al-Hussainy said.

The news is likely to be welcomed by President Donald Trump, who in recent months has cast the Fed as "crazy" for continuing to boost interest rates.

Powell noted risks to his positive outlook include a slowdown in Europe and ongoing trade tensions with China.

And he said global growth which had been a tailwind to the U.S. economy, had begun to slow - notably in Europe and China where tariffs and Brexit are weighing.

"The world is slowing, but we're not slowing", Trump said during an exclusive interview on "Mornings with Maria". "We should remain patient and let the situation clarify over time; when the time comes, we will act appropriately".

The benchmark 10-year yield, which reflects investor views on the overall health of the economy, fell to a 14-month low on Wednesday but was last up 0.3 basis point to 2.541 per cent. The dollar weakened broadly against major trading partners' currencies. The exact mix will matter a great deal down the road, given that the Fed opted this week to sacrifice policy flexibility for 2019 in favor of giving bullish investors exactly what they desired. At that meeting, the Fed approved a fourth rate hike for 2018 and projected two additional rate increases in 2019.

"That was more dovish than people were expecting at the margin, even though the market was looking for a dovish Fed today", said Tomes.

Inflation for the year is now seen at 1.8 percent, compared to the December forecast of 1.9 percent.

Norway's currency shot up after its central bank, going against the grain, raised interest rates and signaled a 50-50 chance another hike will follow by mid-year.

Strong household spending and business investment lifted gross domestic product 0.6 per cent in the December quarter, helping the kiwi climb to a seven-week top of US$0.6938.

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