US Fed holds rate but sees cut in 2021 amid uncertainty

     The Federal Reserve, the U.S. central bank, left its benchmark target for the federal funds rate steady at 2.25 to 2.50 percent but acknowledged growing uncertainty about the economic outlook and forecast a rate cut next year, a sharp change from March when it had forecast a rate hike.
      Echoing Chairman Jerome Powell’s statement from June 4, the Fed said it would “act as appropriate to sustain the expansion” in light of the rising uncertainty and muted inflation pressures, a another sharp change from March when the Fed said it would be “patient” while observing global economic and financial developments.
      Today’s statement by the Fed’s policy-making body, the Federal Open Market Committee (FOMC), continues the steady shift away from its tightening monetary policy stance since January this year following 9 rate hikes since December 2015.
      Unlike its decisions in January and March, the FOMC was split today, with James Bullard, president of the St. Louis Fed, voting for a 25 basis point cut. The other 9 committee members voted to maintain the rate.    
      In an update to its economic forecast, the FOMC projected the funds rate would average 2.4 percent this year, unchanged from its March forecast, but then drop to 2.1 percent in 2020 as compared with an increase to 2.6 percent that was projected in March, implying one cut of 25 basis points.
      In 2021 the rate was seen rising back up to 2.4 percent, but still down from 2.6 percent previously forecast.
      Illustrating the downward path in rates, the longer-run funds rate was forecast at 2.5 percent, down from 2.8 percent, as economic growth was seen decelerating to 2.0 percent in 2020 from 2.1 percent in 2019 and then 1.8 percent in 2021.
      As in March, the Fed said the U.S. labor market remains strong, but added economic activity was “rising at a moderate rate,” down from its March view that activity was rising “at a solid rate,” as business fixed investment has been “soft” despite household spending picking up from earlier in the year.
      The jobless rate was forecast to slowly rise to 3.8 percent in 2021 from 3.7 percent in 2020 and 3.6 percent in 2019 while inflation, as expressed in personal consumption expenditure, is seen slowly rising to 2.0 in 2021 from 1.9 percent in 2020 and 1.5 percent this year, down from the March forecast of 1.8 percent.

   

      The Board of Governors of the Federal Reserve System released the following statement: