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April 29, 2019

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Fed is seen holding fire on interest rates for now

The Federal Reserve is poised to hold its fire this week, leaving benchmark US interest rates untouched as central bankers await firm indications of where the world’s largest economy is headed.

But as policy-makers gather for their third meeting of the year tomorrow, President Donald Trump is still hammering the Fed, demanding they lower interest rates. He also made plans to fill Fed vacancies with political loyalists to help get his way.

Top White House economic adviser Larry Kudlow said on Friday the surprisingly strong growth in the first quarter of the year could “open the door to a target rate reduction in the months ahead” — though he hastened to add that he respected the Fed’s independence.

In addition, inflation “is coming in way below their own benchmark,” he told CNBC, referring to the central bank’s 2 percent target, while its most-watched measure has remained stubbornly slow, coming in at 1.3 percent in the first quarter of the year.

Fed Chairman Jerome Powell has steadfastly defended the central bank’s independence, and made it clear officials will base their decisions on economic data.

After four increases in the benchmark lending rate in 2018, the Fed has signaled clearly it would not raise rates this year. And given the strength of recent data reports, a rate cut could seem counterintuitive.

But some economists still think the next move will be a cut.

The minutes from last month’s policy meeting show members of the rate-setting Federal Open Market Committee believed their policy stance could “shift in either direction,” at least raising the possibility of a rate cut at some point.

Futures markets appear convinced the FOMC will feel compelled to lower rates at least once in the next nine months, and as of Friday odds were at 20 percent it will cut as soon as June.

In recent media interviews, Richard Clarida, the Fed’s vice chairman, and Charles Evans, president of the Chicago Federal Reserve Bank, acknowledged rate cuts could become necessary.

But with Wall Street hovering at record levels of unemployment below 4 percent and job creation holding steady, economists say that for the moment the central bank is sticking with the pause announced in December.


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