Fed to stay course through 2020?

by Ryan Smith13 Nov 2019

The Federal Reserve looks set to keep monetary policy on hold through 2020, according to market watchers – a strategy that would break with election-year precedent.

Federal Reserve Chairman is likely to signal during testimony before Congress today that the Fed intends to keep monetary policy on hold for now, adding weight to the belief that the Fed may stay on its current course through 2020.

That would be a change from previous election years. The Fed has changed policy in one direction or the other for each of the last 10 presidential election years, according to a Bloomberg report. While the Fed didn’t move its benchmark rate – already at zero – in 2012, it did announce its third round of large-scale asset purchases that year.

While the central bank has cut rates three times this year, many expect its cut last month to be the last for a while. The cuts haven’t satisfied President Donald Trump, who has repeatedly accused the Fed of keeping credit too tight.

“We are actively competing with nations who openly cut interest rates so that now many are actually getting paid when they pay off their loan, known as negative interest,” Trump said Tuesday in a speech in New York, according to Bloomberg. “Give me some of that money. I want some of that money. Our Federal Reserve won’t let us do it. It puts us at a competitive disadvantage to other countries.”

Powell will testify today before the Joint Economic Committee of Congress and on Thursday before the House Budget Committee. He’s likely to testify that rates don’t need further cutting at the moment, Bloomberg reported.

According to market watchers, solid jobs reports and recent rises in stock and bond prices, as well as hopes of a deal to end the US-China trade war, have reduced the likelihood of rate cuts, Bloomberg reported.

The Fed’s governing body, the Federal Open Market Committee, will next meet Dec. 10-11.