Fed eases monetary policy through words

Source: Dukascopy Bank SA
"However, global economic and financial developments continue to pose risks"
- Federal Reserve

The Fed eased monetary policy, not by cutting interest rates, but through words. In line with analysts' expectations, the US central bank held interest rates steady. The Fed noted that moderate growth of the US economy and robust job gains would allow it to tighten policy this year. However, instead of four rate hikes expected earlier, now fresh projections showed policy makers expected two quarter-point lifts by the end of the year. The US economy continues to face headwinds from an uncertain global economy, the US central bank admitted. Fed officials anticipated weaker economic growth and lower inflation this year and revised their estimate of where the targeted lending rate would be in the long term to 3.30% from 3.5%. Fed policy makers marked down their estimates of inflation this year to 1.2% from 1.6%, but see it climbing close to the central bank's 2% medium-term target next year. Fed Chairwoman Janet Yellen also said that the US economy is expected to grow just 2.2% this year, down from 2.4% in December, due to weaker global growth. The Fed adopted a cautious approach to rate outlook at its policy meeting in January in light of a selloff on financial markets, lower oil prices and sliding inflation expectations. The Fed's cautious approach followed the recent similar action from its peers. In January, the BoJ cut rates into negative territory. Last month, the PBoC lowered reserve requirements, while last week, the ECB cut rates further into negative territory and expanded its bond-buying programme.

© Dukascopy Bank SA

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