Wednesday, November 21, 2018

Fed leaves interest rate unchanged

By on November 8, 2018

SAN JUAN –  The Federal Open Market Committee said Thursday that, since it met in September, the U.S. labor market has continued to strengthen as anticipated, economic activity “has been rising at a strong rate,” and inflation changed little.

Thus, the Board of Governors of the Federal Reserve System voted unanimously to maintain the interest rate paid on required and excess reserve balances at 2.2 percent, effective Friday. The Federal Reserve’s mandate is to foster employment and price stability.

“Job gains have been strong, on average, in recent months, and the unemployment rate has declined. Household spending has continued to grow strongly, while growth of business fixed investment has moderated from its rapid pace earlier in the year. On a 12-month basis, both overall inflation and inflation for items other than food and energy remain near 2 percent. Indicators of longer-term inflation expectations are little changed, on balance,” its release reads.

The committee expects to gradually increase “the target range for the federal funds rate…consistent with sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee’s symmetric 2 percent objective over the medium term.”

It added that risks to the economic outlook “appear roughly balanced.”

The Fed has projected three rate increases next year after an expected fourth hike this year next month, according to the Associated Press, which reports that the “median assessment of Fed officials has pegged the neutral rate at 3 percent. One more rate increase this year and two more in 2019 would leave the Fed’s benchmark rate at a range of 2.75 percent to 3 percent.”

When determining the future interest rate adjustments, the “Committee will assess realized and expected economic conditions relative to its maximum employment objective and its symmetric 2 percent inflation objective. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments,” it said.

The Fed’s implementation note states that its decision directs the Open Market Desk at the Federal Reserve Bank of New York to execute transactions in the System Open Market Account in accordance with the following policy directive:

“Effective November 9, 2018, the Federal Open Market Committee directs the Desk to undertake open market operations as necessary to maintain the federal funds rate in a target range of 2 to 2-1/4 percent, including overnight reverse repurchase operations (and reverse repurchase operations with maturities of more than one day when necessary to accommodate weekend, holiday, or similar trading conventions) at an offering rate of 2.00 percent, in amounts limited only by the value of Treasury securities held outright in the System Open Market Account that are available for such operations and by a per-counterparty limit of $30 billion per day.

The Committee directs the Desk to continue rolling over at auction the amount of principal payments from the Federal Reserve’s holdings of Treasury securities maturing during each calendar month that exceeds $30 billion, and to continue reinvesting in agency mortgage-backed securities the amount of principal payments from the Federal Reserve’s holdings of agency debt and agency mortgage-backed securities received during each calendar month that exceeds $20 billion. Small deviations from these amounts for operational reasons are acceptable.

The Committee also directs the Desk to engage in dollar roll and coupon swap transactions as necessary to facilitate settlement of the Federal Reserve’s agency mortgage-backed securities transactions.”

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