Fundamental Comment

Fed holds interest rates, leaves door open to possible rate cuts

Fed leaves door open to possible rate cuts

The Federal Reserve kept its interest rates unchanged at the monetary policy meeting held on Wednesday, but noted the central bank's willingness to cut interest rates and ease monetary policy amid uncertainty about growth prospects.

The Fed's Open Market Committee decided to set keep rates in the range between 2.25 percent and 2.5 percent, moving in line with expectations.

The Federal Reserve abandoned the term "patience" from its statement and replaced it by acting if needed, paving the way for future interest rate cuts, amid growing uncertainty regarding the trade war with China.

However, the Fed said growth rates are continuing to expand as economic activity evolves, the strong labor market continues to support the economy, while inflation is close to the Fed's target of 2 percent,

Uncertainty remains about the future of inflation, the Fed stressed.

In the long term, the Bank expected interest rates to be slashed to 2.5 percent from 2.8 percent, while the Fed’s interest rate expectations for 2019 remained at 2.4%. For interest rate expectations in 2020 and 2021, the Fed declined to increase the probability of at least one reduction in interest rates during next year.

The growth forecast for the US economy will stabilize at 2.1 percent in 2019 and will drop to 1.9 percent in 2020, according to the Fed’s growth estimates.

Inflation expectations for this year slipped to 1.5 percent from 1.8 percent.

The US dollar fell sharply following the Federal Reserve's announcement, as the dollar index slumped to a one-week low of 96.56 after opening at 97.15.

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