The Federal reserve signaled the completion time of higher interest rates and a willingness to be flexible in reducing their investments in bonds.
The move is a sharp reversal compared to the previous month, when the regulator retains the mood for a tightening of monetary policy.
“The Committee of the Federal open market would be patient to determine what future adjustments to the target rate of Federal funding may be appropriate”, – reads the statement of the Central Bank.
This formulation opens the way for the next step could be the reduction in the rate.
In a special statement, the fed said that “ready to adjust any item to complete the normalization of the balance in light of the evolving economic and financial events.”
The fed’s Jerome Powell told reporters that although the US economy is doing well, slowing growth in China and Europe, Brexit, trade negotiations and a pause in the work of the U.S. government sending conflicting signals about the prospects.
US stocks rose, the yield on U.S. Treasury bonds fell and the dollar fell on the background signals of the Central Bank, indicating a shift from efforts to prevent the overheating of the economy to maintain growth.
In December 2019, a majority of the fed – 11 of the 17 votes were in favour to raise no more than two times in 2019 year, while four of them feel justified only one increase and two no.
In 2020, according to the forecast of the fed, perhaps even one or two upgrades, where the cycle of monetary policy tightening in the US will be completed.
At the moment the fed reduces its monthly investments to $ 50 billion.
The decision to reduce the amount of investment the fed made back in September of last year, when it was headed by Janet Yellen. Then the assets of the Bank amounted to 4.5 trillion dollars.
At the current rate, a reduced balance, will likely take up to 3.5 years, it will reach 2.5 trillion dollars.
The expansion of assets on the fed’s balance sheet occurred against the backdrop of the global financial crisis of 2007-2009 and the need to support the US financial system.
In 2007, the assets of the fed was $ 800 billion (6% of GDP at the time). Thanks to the policy of quantitative easing, they began to grow.
The last rate hike cycle in the US lasted from June 2003 to June 2006.
From that moment on and until 2015, the fed consistently lowered the cost of money – first, careful steps from 5.25% to 4.25% per annum (to the end of 2007 year), then, in the background gaining momentum mortgage crisis – sharply, to 3% in January and 2% by April 2008.
On the backdrop of the collapse of markets in the autumn of 2008, the fed consistently lowered the rate to 1.5%, 1%, and in December to a historic low range of 0% to 0.25%.
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