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Interest Rates in the US Remain Steady

The Federal Reserve held its final meeting of the year on Wednesday this week. In it, they decided not to change the current interest rates. There was also a clear indication that we can expect little change in the foreseeable future.

The Outcome of the Meeting

This meeting of the Fed came against the backdrop of the interest rates already being cut three times earlier this year. President Donald Trump has also been putting on pressure for more cuts, as he suggested that the US should follow other countries in applying negative interest rates to help businesses to borrow.

However, the American economy is still in the midst of an expansion period that has gone on for a record period of over a decade. This led to the decision-makers deciding to keep the rates as they are for the rest of the year and the start of next year. The decision was taken unanimously by all 17 officials who took part. 

Out of this group, four of the members think that interest rates will need to increase in 2020. In the last quarterly meeting, nine of the members had expected a rate increase to be on the cards for next year. 

What Will Happen in the Next Few Years?

Looking to the future, it seems that there will also be minimal changes in the next few years. Comments released after the meeting suggested that the next move is likely to be a rate increase in 2021, with a further hike predicted for 2022.

Jerome H. Powell is the chair of the Federal Reserve. He said that they would stick to their current rate policy until persistent inflation increases are seen. He added that no-one can really say “what the economy will look like in 2021”.

Powell stated that the outlook for the American economy “remains a favorable one”. He suggested that the cuts that they made earlier in the year are having the desired effect. In addition, he pointed out that this 11-year expansion period is helping Americans who want to work, do so.

The main risks ahead appear to be related to sluggish growth around the world. This was said to be part of the reason why factory production data in the US remains lower than hoped for in recent months. 
Powell also blamed the trade war with China, saying that companies have been telling them that “trade policy uncertainty is weighing on the outlook”. This is a factor that has seen international debt recovery become more important, as businesses look to protect their finances.

In further comments, Powell predicted that with a strong household sector and the right financial conditions, “we expect moderate growth to continue”. This is a clear improvement from earlier in the year, when there were genuine fears that the country could be heading into a period of recession. 
While consumer spending continues to be strong. The Fed’s post-meeting comments make it clear that there are still a number of uncertainties about the future. Therefore, there is still a chance that their first meeting of 2020 involves some big decisions.