The Fed stays put, and plans a long pause.

The December meeting contained relatively few surprises in the economic outlook, and confirmed the Fed’s intention to let the economy run hot in an attempt not no let expected inflation drop.

Highlights:

  • As widely expected the Fed kept rates stable and did not make any substantial changes to the economic outlook.
  • The dots signaled a strong preference for stable rates in 2020 with only four FOMC members now seeing a hike.
  • Chair Powell reiterated the Fed’s concern for stubbornly low inflation and reckoned that labor market slack is larger than expected. This will be conductive to a review of the policy rule, which will likely lead a downward revision of the expected policy rate path in the coming meetings.
  • Given our less upbeat 2020 growth forecast (1.6% versus the 2% penciled in by the Fed) and the slide in expected inflation we stick to our forecast of another rate cut in the first half of 2020.

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COVID-19 UPDATE Facts & Figures – 04/08/2020

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