U.S. Markets close in 1 hr 14 mins

No Rate Rises This Year, Federal Reserve Hints

Jerome Powell Federal Reserve

The US Federal Reserve kept its benchmark interest rate unchanged last night and indicated that US interest rates are likely to remain unchanged for the remainder of the year, giving further support to positive equity markets.

The forecast for interest rates to be unchanged at the end of the current year compares with the December projections indicating two rate hikes in 2019.

Fed Chairman Jerome Powell said the US economy "is in a good place" and cited "solid underlying economic fundamentals" of unemployment below 4% and inflation below 2% in announcing the decision of the Federal Open Market Committee after a two-day meeting in Washington.

The positive outlook that Powell described includes the committee's estimate that US economic growth this year will be about to 2%, which is lower than its previous forecast and less than the White House's rosier estimate of about 3%.

Part of the reason for the Fed's lower growth rate projection is that a global economic tailwind that helped lift the US economy last year is gone, he said, noting that the European and Chinese economies have slowed.

The Morningstar View - Eric Compton

The Federal Reserve is no longer in any rush to raise rates. The Federal Open Market Committee voted to maintain its target rate range at 2.25%-2.5% in its second official meeting of 2019. The vote was unanimous. All things considered, we did not see any real surprises in the latest release, although the dot plot did become perhaps as dovish as possible. There were fewer changes to the language of the current release compared with the last release.

The Fed emphasised that recent indicators point to slower growth for household spending and business fixed investment, but otherwise the language was essentially the same. We have maintained our underlying rate hike assumptions for our US banking coverage, which includes no rate hikes in 2019, and only a single hike in mid-2020. CME futures data continues to point to no rate hikes in 2019, as does the Fed's dot plot. 

Market Reaction and Trade Talks

In the US on Wednesday, Wall Street ended lower following the decision, with the Dow Jones Industrial Average ending down 0.6%, the S&P 500 down 0.3% but Nasdaq Composite gaining 0.1%.

Meanwhile, top US trade negotiators will head to China next week for another round of talks aimed at settling a months-long trade war.

US Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin will make the trip, an administration official confirmed to dpa on Wednesday.

President Donald Trump said Wednesday the US trade negotiators would leave over the coming weekend. Their job is to "further the deal," Trump said as he left the White House for Ohio, referring to a hoped-for trade deal between the two countries.

Trump also said the deal is "coming along nicely" but added that the US will leave tariffs in place for a "substantial period of time" while Washington makes sure China follows whatever agreement is reached.