Fed Keeps Rates Steady as Sluggish Inflation Continues

Fed Keeps Rates Steady as Sluggish Inflation Continues

Investing.com  | Jan 30, 2020 03:03

Fed Keeps Rates Steady as Sluggish Inflation Continues

By Yasin Ebrahim

Investing.com - The Federal Reserve held rates steady on Wednesday, as the sluggish pace of inflation coupled with a strong labor market did little to shift the central bank's outlook on the economy.

The Federal Open Market Committee left its benchmark rate unchanged in the range of 1.5% to 1.75%.

The Fed delivered three rate cuts in 2019, the last in October and policymakers have indicated that rates will remain on hold until there is some significant change in the economic outlook.

With the U.S. labor market in good shape, boasting record-low unemployment, the Fed has identified inflation as the main driver of future policy decisions.

U.S. consumer prices ticked higher in December while monthly underlying inflation slowed, supporting the Fed’s case to keep interest rates on hold at least through this year.

Investors are now turning their attention to Chairman Jerome Powell's press conference at 2:30 PM ET (19:30 GMT) for insights into the Fed’s balance sheet policy, and whether or when it expects to withdraw repo funding.

The U.S. central bank has been buying Treasury bills of up to $60 billion a month since mid-October to steady overnight lending rates, which spiked on fears of a liquidity crunch in the short-term funding market.

But it has created the impression that the Fed is engaging in an unofficial form of the quantitative easing it used to prop up the economy in response to the global financial crisis.

The Fed has stressed that its repo funding is not a form of monetary easing, but many disagree, pointing to the expansion in the central bank's balance sheet since the launch of the operation.

Powell may also address the impact of the coronavirus on the global economy, which has come about just as trade tensions between Washington and Beijing are easing.

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