The US Federal Reserve sent a strong signal the US economy is slowing, indicating on Wednesday that it would not raise the benchmark lending rate again this year amid a drop in spending and broader global uncertainty.
It was an aggressive downshift that came as a shock to many economists, since as recently as September last year the Fed expected to raise rates three times this year.
“It may be some time before the outlook for jobs and inflation calls clearly for a change in policy,” Federal Reserve Chairman Jerome Powell told reporters following the announcement.
Photo: Reuters
He said global growth which had been a tailwind to the US economy, had begun to slow — notably in Europe and China where tariffs and Brexit are weighing.
The Fed’s surprising change of direction follows the four rate increases last year, frequently in the face of vociferous antagonism from US President Donald Trump, who called the central bank “crazy” for tightening monetary policy as the economy grew.
The change could prompt speculation that the most recent hike in December last year, implemented despite a Wall Street sell-off and signs of weakening economic activity, was aimed at demonstrating the bank’s independence from Trump.
The shift in the closely-watched forecast released meant nine of the 17 members of the policy-setting Federal Open Market Committee (FOMC) lowered their projection for this year.
The forecast also confirmed the next move is still expected to be an increase in the key policy interest rate, though that is not now expected to come until sometime next year.
The explanation can be found in the stark change in language in the statement from committee, which voted unanimously to keep the key rate unchanged at 2.25 to 2.5 percent.
In its second meeting of the year, the committee said “growth of economic activity has slowed from its solid rate in the fourth quarter,” as household and business spending is expected to drop off, and annual inflation has declined.
Powell explained the about-face, saying that, while fiscal stimulus boosted the economy last year, there had been “data arriving since September suggesting that growth is slowing somewhat more than expected.”
While “developments at home and around the world that bear close attention,” Powell told reporters at a news conference that the Fed’s outlook “is a positive one.”
The committee members forecast a median federal funds rate this year of 2.4 percent — the current level — down from the 2.9 percent forecast in December and 3.1 percent in September.
Central bankers also cut their median forecast for economic growth this year to 2.1 percent, from 2.3 percent in December.
That is a sharp contrast to the expectation of more than 3 percent this year, forecast by the White House Council of Economic Advisers.
The FOMC also decided to slow the shrinking of its securities holdings — including Treasury notes and mortgage-backed securities (MSB) — which were built up to US$4.5 trillion in the years after the 2008 global financial crisis.
Starting in May, the Fed will reduce the balance sheet by US$45 billion a month, down from US$50 billion previously.
However, 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 said the total holdings will fall to a bit above US$3.5 trillion.
Intel Corp chief executive officer Lip-Bu Tan (陳立武) is expected to meet with Taiwanese suppliers next month in conjunction with the opening of the Computex Taipei trade show, supply chain sources said on Monday. The visit, the first for Tan to Taiwan since assuming his new post last month, would be aimed at enhancing Intel’s ties with suppliers in Taiwan as he attempts to help turn around the struggling US chipmaker, the sources said. Tan is to hold a banquet to celebrate Intel’s 40-year presence in Taiwan before Computex opens on May 20 and invite dozens of Taiwanese suppliers to exchange views
Application-specific integrated circuit designer Faraday Technology Corp (智原) yesterday said that although revenue this quarter would decline 30 percent from last quarter, it retained its full-year forecast of revenue growth of 100 percent. The company attributed the quarterly drop to a slowdown in customers’ production of chips using Faraday’s advanced packaging technology. The company is still confident about its revenue growth this year, given its strong “design-win” — or the projects it won to help customers design their chips, Faraday president Steve Wang (王國雍) told an online earnings conference. “The design-win this year is better than we expected. We believe we will win
Chizuko Kimura has become the first female sushi chef in the world to win a Michelin star, fulfilling a promise she made to her dying husband to continue his legacy. The 54-year-old Japanese chef regained the Michelin star her late husband, Shunei Kimura, won three years ago for their Sushi Shunei restaurant in Paris. For Shunei Kimura, the star was a dream come true. However, the joy was short-lived. He died from cancer just three months later in June 2022. He was 65. The following year, the restaurant in the heart of Montmartre lost its star rating. Chizuko Kimura insisted that the new star is still down
While China’s leaders use their economic and political might to fight US President Donald Trump’s trade war “to the end,” its army of social media soldiers are embarking on a more humorous campaign online. Trump’s tariff blitz has seen Washington and Beijing impose eye-watering duties on imports from the other, fanning a standoff between the economic superpowers that has sparked global recession fears and sent markets into a tailspin. Trump says his policy is a response to years of being “ripped off” by other countries and aims to bring manufacturing to the US, forcing companies to employ US workers. However, China’s online warriors
RSS