So . . . Why did the Fed decide not to raise rates on January 30, 2019, and leave them at the 2.25%-2.5% range? I think the following quote from the Fed’s Statement sums it up best:
"In light of global economic and financial developments and muted inflation pressures, the Committee will be patient as it determines what future adjustments to the target range for the federal funds rate may be appropriate to support these outcomes….” [emphasis and deletions for clarity]
In other words the US economic slowdown, as well as China’s economic slowdown, mixed with the trade tariffs between these two powerhouse super-nations is enough to possibly, in and of itself, give pause to the Fed. Now throw in that the Consumer Price Index and the Personal Consumption Expenditures Index (indexes that the Fed uses to measure inflation) are slowing and/or plateauing, and you begin to understand why the Fed is easing up on their rate raising campaign. It also doesn’t help that the market has reacted negatively to past rate increases and Fed Minutes language in 2018; thereby, possibly placing a nagging overriding back-of-the-mind sub-conscious thought regarding further Fed rate increases.
The above is additionally supported by the fact that the Fed felt compelled to issue a separate statement about the Fed’s Balance Sheet tightening policy. You see, the market has been squawking with the Fed’s attempt to reduce its balance sheet from the Great Recession Quantitative Easing Program. Staring back in 2017, the Fed has been allowing a monthly capped level of this matured debt to roll off its books. The Fed’s past statement that this program was on “autopilot” has now changed to their amenability, to not only consider pausing this program, but even to one of considering a reversal of the program, i.e., a willingness to begin injecting liquidity back into the economy, if necessary.
For an update about the Fed’s economic policy in July of 2020, click here for an article by CNBC.
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