On Wednesday, the Federal Reserve decided not to raise interest rates and indicated this would remain unchanged for the rest of the year. This announcement comes just three months after the Fed said they expected two hikes in 2019.
This move is likely in response to a marked slowdown in both the U.S. and global economies. After the announcement, the 10-year treasury yield fell to its lowest level since January 2018.
No Anticipated Rates Changes in 2019
The benchmark funds rate will remain steady at a range of 2.25 to 2.5 percent. This is the rate used to determine the interest rate on things like credit cards and home equity loans.
The Fed also downgraded their expectations for economic growth to 2.1 percent from their original projection of 2.3 percent.
The Fed also plans to stop shrinking its bond portfolio in September, which will help hold down interest rates. All of these moves indicate no major changes in interest rates for consumers or businesses.
This is a notable change in direction for the Fed, which previously sought to get policy back to a place where they would have room to move in the event of another economic downturn. In comparison, the Fed raised interest rate four times in 2018.
And some analysts believe that the Fed could lower interest rates next if the economy continues to slow down. But policymakers expect the unemployment rate to drop from 3.8 percent to 3.7 percent by the end of the year.
The Fed’s Announcement Met With Mixed Reactions
The Fed’s projections stand in stark contrast to White House estimations, which projected 3.2 percent growth this year. Powell declined to comment on this but many outside experts believe the White House’s projections are overly optimistic.
President Trump has repeatedly urged the Fed to stop raising rates, arguing that these hikes would cause people to hold off from investing in the stock market.
Initially, the Fed’s announcement was met with positive reactions from investors and the Dow went up 200 points during Powell’s news conference. But as the day went on, more people started to become concerned that this was a sign that the U.S. economy is headed for a downturn.
But Chairman Jerome Powell said he expects economic growth to slow down but “the economic fundamentals are still very strong.” Powell said that although growth in 2019 has been slower than expected, he doesn’t foresee a recession.