Federal Reserve Maintains Interest Rates, Cites Sluggish Inflation

In a move that was widely expected, the Federal Reserve opted not to raise interest rates on Wednesday. The decision comes just six weeks after the Fed said another interest rate hake in 2019 is unlikely.

“Information received since the Federal Open Market Committee met in March indicates that the labor market remains strong and that economic activity rose at a solid rate,” the Fed said in a statement.

The Fed said relatively low inflation below its 2 percent target rate and slowing household and in the business spending in the first quarter offset a strong labor market and low unemployment rates.

The Federal Reserve chose once again to reject calls by President Donald Trump to cut interest rates. Trump said Tuesday the U.S. economy would “go up like a rocket” if the Fed would cut interest rates by 1 percent.

Global Slowdown

Wednesday’s decision by the Federal Reserve comes amid a wave of economic growth forecast cuts around the world. On Tuesday, Statistics Canada reported Canada’s GDP was down 0.1 percent in February, missing consensus economist expectations of 0.1-percent growth.

Last month, the International Monetary Fund cut its 2019 global growth forecast from 3.5 percent to 3.3 percent. The IMF specifically mentioned international trade disputes as a headwind to global economic growth.

In March, the European Central Bank cut its 2019 economic growth forecast for the Eurozone from 1.7 percent to 1.1 percent and announced a third round of bank stimulus that will begin in September and run through March 2021.

Markets React

U.S. stocks were trading flat ahead of the Fed announcement on Wednesday morning after data from ADP and Moody’s Analytics revealed the U.S. added 275,000 private payroll jobs in April, the highest number since July of 2018. The SPDR S&P 500 ETF Trust SPY traded slightly higher by 0.1 percent after the Fed announcement eased fears of a potential resumption of rate hikes in the near-term.

Yields on 10-year U.S. Treasury bonds fell 0.041 percent on Wednesday to 2.464 percent, their lowest level since mid-April.

Related Links:

Canadian Economy Contracts In February

IMF Cuts Global Growth Forecast