US Federal Reserve Holds Policy Rate at 1.75%
The United States’ (US) Federal Reserve (Fed) decided at today’s FOMC policy meeting to hold the policy rate steady at 1.75%. However, the special reserve rate charged by the Fed to banks on balances exceeding the highest penalty-free band has been changed from 1.5% to 1.6%. The Fed indicated that the reason not to change the policy rate is a combination of the continued strength of the labour market and the moderate pick-up in economic activity in the country. Business fixed investment and exports, however, remained weak despite household spending rising at a moderate rate. The Committee indicated that the monetary policy stance to hold the rate is appropriate to support sustained economic growth, strong labour market conditions, and inflation returning to the Fed’s 2% target.
We believe that while the easing of trade tensions has brought some level of stability back to the market, new developments such as the coronavirus outbreak stand to threaten economic activities in the US and slow global growth. Since the outbreak, several large multinational corporations have indicated that their bottom-line earnings could be affected. This development is therefore likely to weigh on the Feds decision at the next policy meeting scheduled for March 18, 2020.