March 25, 2019 — Fed Suspends Rate Increases for 2019


At their March monthly meeting, the Federal Reserve indicated they are unlikely to raise interest rates this year.  The news was not unexpected; in the last three months since the December rate hike, US economic growth has slowed as has global growth, inflation has not taken hold and, despite historically low unemployment, wages have not rebounded.  The Fed will also slow the pace at which it’s shrinking its $4 trillion asset portfolio and end the run off of its treasury holdings at the end of September, two years after the process started. The portfolio started at $4.5 trillion in October 2017 and will be at $3.8 trillion by September of this year.

The Fed is taking a cautious stance in order to keep the economy on track. Fed Chair Powell is discouraged inflation has not risen in a more sustainable way.  He feels the economy can employ more people without risking an increase in inflation.  The metric of unemployment consistent with stable prices is down to 4.3% from 4.5% a year ago and 4.8% in 2016.

LIBOR is not expected to decline, as we do not see the Fed easing any time soon.  The inverted yield curve offers a rare opportunity to lock in long-term swap rates at levels below LIBOR.