Fed Says It Won’t Hike Rates in 2019, Citing Economic Slowdown

Jerome Powell chairman of the U.S. Federal Reserve

Banks led US stocks mostly lower Wednesday after a brief rally sparked by the Federal Reserve's latest policy update faded. The forecast for unemployment rose slightly to a still-low 3.7 percent.

In recent months, Powell and the Fed have appeared to take a more dovish approach to interest rates amid concerns about slowing global growth - a result of a more than year-long trade war between the US and China and uncertainties about Brexit.

Benchmark 10-year notes last rose 25/32 in price to yield 2.5245 percent, from 2.612 percent late on Tuesday.

Treasury yields fell after the Fed's statement, with the benchmark 10-year touching a 14-month low.

Major U.S. indexes snapped higher across the board shortly after the Fed released its latest policy announcement at 2 p.m.

It was an aggressive downshift that likely will come as a shock to many economists who did not look for such a drastic change in outlook from the central bankers, who as recently as September expected to raise rates three times in 2019. Some analysts believe the next rate move could be a cut later this year if the economy slows as much as some fear it might.

But from October, it will no longer reduce its Treasury holdings, while continuing to runoff US$20 billion a month of MBS, the Fed said in a separate statement.

Powell, appearing last week on CBS's "60 Minutes, " denied that pressure from Trump had influenced the Fed's policy shift.

Expectations for an interest-rate hike this year have fallen below those for a cut. On Tuesday, it fell 0.2 per cent to 96.415 The Australian dollar has gained the most from the United States dollar's retreat.

At the closing bell, the Dow Jones Industrial Average fell 141.71 points, or 0.55 percent, to 25,745.67, the S&P 500 lost 8.34 points, or 0.29 percent, to 2,824.23 and the Nasdaq Composite added 5.02 points, or 0.07 percent, to 7,728.97.

The average had been down more than 216 points earlier. The euro also profited from the weaker dollar, adding 0.2 per cent to $1.1348. The S&P 500 index is up 12.8 percent so far in 2019.

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In a move that was widely expected, policymakers at the USA central bank unanimously agreed to leave interest rates unchanged in light of global economic and financial developments, as well as muted inflation. The Fed increased rates four times past year and three times in 2017.

The Fed forecasts economic growth of 1.9 percent in 2020.

On the losing end, though, are US banks, whose profits can take a hit if the gap between short- and long-term interest rates narrows.

Chemical maker Bayer slumped 9.6 per cent after it lost the first round of a USA trial over allegations its weed killer Roundup causes cancer. Humana dropped 4 per cent, United Rentals fell 3.8 per cent and Oracle shed 2.6 per cent.

European bourses followed Asian peers down, putting the MSCI's gauge of stocks around the world on course to break seven days of gains, with reports of renewed tensions in U.S.

That compares with a December projection for a 3.1 percent rate in 2020 and 2021, with borrowing costs converging to 2.75 percent in the longer run, according to the median path.

Some market players said investors took money off the table after a report of USA concerns that China is pushing back against American demands in trade talks.

Talks are set to resume next week - the first since President Donald Trump delayed a March 1 deadline to raise tariffs on Chinese imports - in an acceleration aimed at ending an eight-month trade war between the world's two largest economies.

Will not comment on White House economic projections.

On the whole, though, many investors are holding on to hopes of a deal between Washington and Beijing, even as officials from the two sides remained locked in negotiations. Trump said the talks are "coming along nicely".

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