Fed holds steady on rates in end to challenging year

The Federal Reserve’s policymaking arm kept interest rates steady Wednesday after its final meeting of 2019, capping off a volatile and momentous year for the bank.

The central bank’s Federal Open Markets Committee (FOMC) said Wednesday it would hold the overnight bank borrowing rate between 1.5 and 1.75 percent through the end of the year.

The Fed was widely expected to leave interest rates unchanged Wednesday after a string of strong jobs reports and solid consumer spending stifled fears of a recession that dominated the summer.

“The current stance of monetary policy is appropriate to support sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee’s symmetric 2 percent objective,” the FOMC said in a Wednesday statement.

After cutting interest rates in three consecutive meetings between July and October, Federal Reserve Chairman Jerome Powell suggested last month that the bank would hold tight unless the economy slumped or inflation spiked.

While President Trump has kept his pressure on the Fed to slash interest rates even further, Powell told lawmakers in November that matching the “very, very low and even negative rates that we see around the world would not be appropriate for our country.”

Ten of the 14 FOMC members projected the Fed to keep rates steady throughout 2020, while four expected one hike. The FOMC’s median estimate of the 2020 unemployment rate was 3.5 percent, its current level, with gross domestic product (GDP) growth lagging slightly to 2 percent next year.

2019 marked a challenging year for Powell and the Fed. The bank kicked off the year under fire for raising interest rates in December 2018 amid a sharp stock market downturn and slumping economic growth. The Fed had hiked interest rates three times earlier in 2018 amid a brief economic surge, even though inflation remained below the bank’s target range.

Trump, his top advisers and Wall Street traders had ripped the Fed in 2018 for hiking rates amid the president’s escalating trade war with China. The president also waged an unprecedented campaign to bully Powell, his own pick to lead the bank, into slashing borrowing costs to boost the White House’s leverage in trade talks.

Despite Trump’s pressure, the Fed held rates steady for most of 2019 even as economic growth and job gains slowed from their torrid 2018 pace. But summer turmoil in the bond market, looming recessions in Europe and Asia, and trade-related economic anxiety pushed the bank to cut rates in July.

Powell in July played down the Fed’s first cut since 2008 as a “mid-cycle adjustment,” expressing confidence in the U.S. economy. Even so, the Fed cut again in September and October, reducing interest rates to the range following Powell’s first rate hike in March 2018.

“I don’t think anybody saw it coming. The challenges that we faced this year, I think they were a surprise,” Powell said Wednesday. “Towards the end of 2018 there was still a sense the economy was growing at around 3 percent.”

Powell added that he was “pleased” the Fed acted to support the economy, adding that he thinks “our moves will prove appropriate.”

The U.S. economy had already begun to improve by the Fed’s third rate cut and added 156,000 jobs, according to revised figures from the Labor Department released Friday. U.S. GDP also grew at an annualized 2.1 percent rate in the third quarter, a solid pace that eased fears of an impending recession.

Three weeks later, the Labor Department reported that the U.S. added a blockbuster 266,000 jobs in November, boosting the average monthly job gain over the past three months to 205,000.

The Fed’s winter hibernation may still rile Trump as he seeks to cement a trade deal with China and ride a strong economy into the 2020 presidential election. Trump has berated Powell and the Fed for refusing to match the ultra-low and negative interest rates in countries teetering on the brink of recession.

“The Fed should lower rates (there is almost no inflation) and loosen, making us competitive with other nations, and manufacturing will SOAR! Dollar is very strong relative to others,” Trump tweeted last week. His tweet followed the release of data showing the fourth straight month of declining U.S. manufacturing activity.

Trump’s pressure on the central bank is likely to intensify as the election draws near.

Trump insists that the Fed should “match” the crisis-level stimulus deployed across Europe and Asia, accusing countries of ripping off the U.S. in trade. The president is also eager for a flood of cheap money to boost the economy and temper the damage of his trade battles as he faces a competitive reelection bid.

Powell and most economists reject the idea that a steadily growing U.S. economy needs an unprecedented level of stimulus. Fed officials are also wary of exhausting their ammunition to fight an actual downturn as economic challenges loom in 2020.

Trump is set to impose tariffs Sunday on more than $100 billion in Chinese consumer goods, subjecting almost all imports from China to tariffs. While consumers have largely avoided the direct costs of Trump’s trade war, the new tranche of tariffs could pose a substantial blow to household budgets.

New tariffs could boost prices on a wide range of clothing, household goods, technology, furniture and other products not widely available outside of China. Trump is also set to impose new tariffs on a wide range of European food imports, which could trigger retaliation from the European Union against beleaguered U.S. farmers.

Updated at 3:42 p.m.