According to the Federal Reserve's FOMC statement, the members of the committee agreed to this interest rate decision. According to the Federal Reserve's estimates, it is expected to raise interest rates once in 2019. The previous estimate was to raise interest rates twice. The Fed's bitmap maintains the forecast of one rate hike in 2020.
The Federal Reserve said that the growth rate of the US economy has slowed since the fourth quarter. Overall inflation declined due to lower energy costs. Compared to the December forecast, the economy has weakened recently, and inflation has decelerated. Domestic investment and commercial fixed investment slowed in the first quarter. The Federal Reserve will continue to downsize its policy, which is expected to be suspended at the end of September. The monthly redemption scale will be reduced from 30 billion US dollars to 15 billion US dollars starting in May. Starting in October, it will be reinvested in institutional bonds and home mortgage-backed securities, with a maximum scale of 20 billion US dollars per month.
Brown, a macro asset allocation strategist at UBS Asset Management, said that the Fed's estimate of not raising interest rates in 2019 is more dovish than the previous market consensus on an interest rate hike once. It can be said that the possibility of raising interest rates this year is over. The news of the balance sheet reduction is in line with expectations.
Michael Pearce, a senior US economist at KITU Macro, pointed out that the Fed's potential economic forecast is still too optimistic; economic growth is expected to fall far below the trend level throughout 2019, which is why we think the Fed's next move will be to cut interest rates.
However, the head of interest rate strategy Nomura said that if the US maintains its economic growth model and brings about inflation, these moderate actions will be enough for the Federal Reserve to raise interest rates in 2020. The interest rate market is rising, mainly because the Federal Reserve will end its contraction sooner than expected. Policymakers also lowered their predictions more strongly than expected. By cutting back on recent forecasts, the Federal Reserve still hopes to achieve a soft landing and maintain the option to raise interest rates once next year. In a situation where external risks may further slow US growth, the Federal Reserve's move is to pre-empt the fiscal drag.
According to CME's “Federal Reserve Watch”, before the Federal Reserve's FOMC statement, the probability that the Fed would maintain interest rates in the 2.25%-2.5% range in June was 87.1%, and the probability of cutting interest rates was 12.9%; after the statement, the probability that the Fed would maintain interest rates in the 2.25%-2.5% range in June was 85.3%, and the probability of cutting interest rates was 14.7%. US federal funds rate futures show that interest rate cuts are more likely this year.
Federal Reserve Chairman Powell said at the press conference that the US economy is in a good position and hopes to maintain this situation. Our overall outlook remains positive. The fundamentals of the economy remain strong. The financial situation is more relaxed than it was a few months ago. Economic growth will remain steady in 2019, albeit at a slower rate than in 2018. Be patient in evaluating any policy adjustments. Inflation is under control. Current policies are in line with future prospects. The outlook requires policy adjustments, and it may take some time before they occur. Being patient means there's no need to rush to make a decision.
Powell pointed out that data since September showed that growth was slower than expected. Growth in Europe and China has slowed. The limited data for 2019 is somewhat more complicated. Monthly employment growth has slowed. Many other labor indicators still show a strong labor market. Retail sales seem to suggest that consumer spending will slow down. Brexit and trade negotiations pose part of the threat to the economic outlook. The interest rate forecast for September last year was not a committee decision; it was just a forecast. It is hoped that the process of reducing the balance sheet will be transparent and smooth.
After the news was announced, the US dollar fell nearly 70 points, falling below the 96 mark, a new low of 95.75 since February 4.
MANIMBO, senior market analyst at WESTERN UNION BUSINESS SOLUTIONS, said that the Federal Reserve's moderation exceeded market expectations and had an impact on the US dollar. The Federal Reserve's decision not to raise interest rates in 2019 was particularly dovish. However, the Federal Reserve said it will continue to support economic growth, which reduces the possibility of cutting interest rates in the next few months. At the end of the downsizing period, September is still in the early stages of expectations.
The price of gold rose sharply, and spot gold rose by nearly 15 US dollars, reaching a new three-week high of 1317.08 US dollars/ounce.
Standard Chartered Bank (Standard Chartered) analyst Suki Cooper believes that the price of gold is likely to soon begin to rise sharply and test last year's top level of 1,366 US dollars/ounce. Currently, the market has high expectations that the Federal Reserve will not raise interest rates this year, and they think it is possible to cut interest rates within a year. We believe that the market may have overestimated the possibility that the Fed will cut interest rates this year.
Cooper pointed out that the average price of gold in the second quarter is expected to be 1,285 US dollars/ounce. However, once the market realizes that the Federal Reserve will not change interest rates anytime soon, then the price of gold will start to rise sharply. Gold prices will be strong at the end of this year. Gold prices in the fourth quarter may test the highs of 2017 and 2018, and may even look at the level of 5 years ago.
Last year, the highest spot gold price for the whole year was 1,366 US dollars/ounce; in 2017, it hit the level of 1,357 US dollars/ounce. Previously, at the beginning of March 2014, the spot gold price once rose above 1,390 US dollars/ounce. Cooper believes that the average price of gold will reach the level of 1,325 US dollars/ounce in the fourth quarter of this year. The dollar will weaken, and central banks are still buying gold.