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December 13, 2019

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US lending rate kept unchanged

The Federal Reserve kept its key lending rate unchanged on Wednesday (US time).

The Federal Open Market Committee, the Fed's rate-setting body, decided to maintain the target range for the federal funds rate at 1.5 percent to 1.75 percent after concluding a two-day policy meeting, in line with market expectations.

“Information received since the Federal Open Market Committee met in October indicates that the labor market remains strong and that economic activity has been rising at a moderate rate,” the Fed said in a statement, adding that household spending has been rising at a strong pace while business fixed investment and exports remain weak.

The decision, though widely expected, is unlikely to please President Donald Trump who has repeatedly berated the Fed and called on its chairman Jerome Powell to slash rates to zero to supercharge the US economy, which Trump says is at a disadvantage against foreign economies with lower rates.

The Fed has lowered interest rates three times since July, amid growing risks and uncertainties stemming from trade tensions, weakness in global growth and muted inflation pressures.

“Our economic outlook remains favorable despite global developments and ongoing risks,” Powell said.

“With our decisions through the course of the past year, we believe that monetary policy is well-positioned to serve the American people,” Powell said, adding the current stance of monetary policy “likely will remain appropriate” as long as the US economy stays on track.

Despite unemployment at a 50-year low of 3.5 percent, US price pressure has not appeared. But Powell said the central bank now sees the connection between low unemployment and inflation as “very faint.”

Unemployment is seen remaining at 3.5 percent through next year, rising to 3.6 percent in 2021. In a demonstration of the disconnect between that low level of unemployment and inflation, the pace of price increases is expected to rise only to 1.9 percent next year.

“We don’t have to worry so much about inflation,” Powell said, adding it would take a “persistent” jump in the pace of price increases for him to think it warranted higher interest rates.

“I think we’ve learned that unemployment can remain at quite low levels for an extended period of time without unwarranted upward pressure on inflation,” Powell said. “In order to move rates up, I would want to see inflation that is persistent and that is significant.”

The US economy expanded at an annual rate of 2.1 percent in the third quarter this year, slightly up from the 2 percent growth rate in the second quarter but a sharp deceleration from 3.1 percent in the first quarter, according to the US Commerce Department.


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