After a meeting of the central bank, that 1 sentence, which is hardly noticeable at first, is often telling. That was no different on Wednesday 20 March. Fed chairman Jerome Powell claimed that the inflation target of 2% had not been convincingly met.
US inflation in January was 1,5% to 2,1%, depending on the metrics used. All written and unwritten monetary rules show that this involves a higher interest rate. If the top man However, if the objective has not been convincingly achieved, this means (loosely translated) that the policy must be even broader. After all, the rule of thumb is: an accommodative policy leads to higher inflation and a tight policy reduces monetary depreciation.
Change plans
The interest rate committee of the Fed (US central bank) therefore decided not only to leave interest rates unchanged, but also to change the plans for the rest of this year. The interest rate committee promised two more interest rate increases in December, but this has now been changed to 2. The bank has also announced that it will increase the interest rate once in 0. Just like the 2020 promised interest rate increases for 1, I also classify that promise for 4 under the heading 'wishful thinking'.
I think there is a good chance that economic growth in the United States (US) will surprise on the upside later this year. This is a result of the measures taken and to be taken and the broader policy of the central banks. The Fed also decided on Wednesday, March 20, to slow down the phasing out of quantitative easing (the purchasing of government and corporate bonds) and to stop it completely in September 2019. That's quite an economic boost for the coming months and quarters.
But, all those measures I talked about are measures that are being brought forward from 2020. That is why I see economic growth in 2020 being significantly lower than what the Fed currently assumes. This means that a recession in 2020 cannot be ruled out. And that is not an environment in which the Fed will raise rates; a reduction is more likely than not.
Consequences for other banks
The Fed's decisions will, in my view, also have consequences for all other central banks. However different they are, they have one thing in common: the desire not to overtake the Fed. This would make their currencies stronger, which is seen as undesirable in many countries. This is because, among other things, it damages the export position and the often (too) low inflation (e.g the eurozone) would press further down.
Now the Fed is firm on the brakes has kicked and starts to move backwards, its sister institutions will do the same. For example, it is expected that the ECB will postpone the desired interest rate increase further into the future. In addition, it is expected that there will be more speculation about the restart of quantitative easing. In other words: very low interest rates can be expected for a longer period of time in the eurozone.