Federal Reserve maintains rates, projects no changes in 2020

The Federal Reserve’s two-day meeting not only yielded no shifts in benchmark interest rate, but also an indication that no action is anticipated next year.

If the central bank follows through, it would be a marked change from a 2019 in which the Fed lowered its rates three times. With the economy on solid, if uncertain footing, “the committee judges that the current stance of monetary policy is appropriate to support sustained expansion of economic activity, strong labor market conditions, and inflation near the committee’s symmetric 2% objective,” the Reserve’s Federal Open Market Committee announced.

For now then, the Fed maintained the target range for the federal funds rate at 1.5% to 1.75%, keeping with most economist expectations. It was a unanimous decision, the first monetary policy action since May that garnered an undivided vote.

Looking further forward via Fed officials’ quarterly projections shows that they expect continued stability. Only one move is projected in 2021, with another in 2022.

The Fed did say that it will “continue to monitor the implications of incoming information for the economic outlook, including global developments and muted inflation pressures, as it assesses the appropriate path of the target range for the federal funds rate.” Still, the optimism from the Fed was clear.

“Our economic outlook remains a favorable one,” said Federal Reserve Chair Jerome Powell at a post-meeting news conference.

“We expect the job market to remain strong.”

With regards to the housing market, MBA Chief Economist Mike Fratantoni affirmed expectations that the Fed will stay the course for a lengthy period of time, noting that “slower economic growth a steady job market, and modest inflation [will allow] them to take an extended pause.”

“Steady short-term rates should keep longer-term rates, including mortgage rates, steady as well, which will be a positive for homebuyers in the year ahead,” he said.

Fratantoni did note that, despite confidence from the Fed, an undercurrent of volatility remains. Indeed, the Fed’s statement acceded that “although household spending has been rising at a strong pace, business fixed investment and exports remain weak.”

“Financial markets remain somewhat fragile, with many concerned regarding the lack of liquidity in overnight funding markets,” Fratantoni said. “The Fed’s ongoing efforts to add liquidity through repos and Treasury purchases will remain a key focus of meetings in the year ahead, even if their short-term rate target is locked in.”


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