FEBRUARY 3, 2020 – ECONOMIC DATA STABLE AS FED MAINTAINS STATUS QUO
2020 is off to a steady start as GDP grew at 2.3 percent for 2019, after rising at a seasonally adjusted rate of 2.1 percent in the fourth quarter. Year over year growth was at its slowest pace since 2016, but in-line with what has been experienced during the expansion that began over 10 years ago. Economists expect similar growth rates in 2020, given the US-China trade deal, low interest rates and high consumer sentiment.
At the monthly meeting last week, the Fed did not change their policy, noting that the status quo was appropriate to support inflation and “returning to” the target. The Fed did lift the interest rate on excess reserves by a 5 bps, a technical adjustment, to keep the benchmark federal funds rate within a target range of 1.50% to 1.75%.
Expectations for 2020 are the Fed will try and hold the course on rates unless there is a “material change” in the economic date to avoid any appearance of political interference as this is an election year. And if there is a rate cut, it will not be due to inflation, rather to promote growth.