HOUSTON (FOX 26) - This week’s panel: Nyanza Davis Moore - Democratic Political Commentator Attorney, Bob Price – Associate Editor of Breitbart Texas , Antonio Diaz- writer, educator and radio host, Jessica Colon - Republican strategist, Keir Murray – Democratic strategist, Justin Lurie – member of the American Petroleum Institute and former Republican Congressional candidate, join Greg Groogan to discuss the politics of the American economy.
WASHINGTON (AP) - The Federal Reserve left its key interest rate unchanged Wednesday and projected no rate hikes this year, reflecting a dimmer view of the economy as growth weakens in the United States and abroad.
The Fed said it was keeping its benchmark rate - which can influence everything from mortgages to credit cards to home equity lines of credit - in a range of 2.25 percent to 2.5 percent. It also announced that by September, it will no longer reduce its bond portfolio, a change intended to help keep long-term loan rates down.
Combined, the moves signal no major increases in borrowing rates for consumers and businesses. And together with the Fed's dimmer forecast for growth this year - 2.1 percent, down from a previous projection of 2.3 percent - the statement it issued after its latest policy meeting suggests it's grown more concerned about the economy. What's more, with inflation remaining mild, the Fed feels no pressure to tighten credit.
In signaling no rate increases for 2019, the Fed's policymakers reduced their forecast from two that were previously predicted in December. They now project one rate hike in 2020 and none in 2021. The Fed had raised rates four times last year and a total of nine times since 2015.
The central bank's theme Wednesday, in its statement and in a news conference by Chairman Jerome Powell, is that it will remain continually "patient" about pursuing any further rate hikes. In his news conference, Powell used some version of the word "patient" no fewer than 10 times.
Stock market indexes initially rallied on the news, but the gains soon faded and many stocks finished the day down. The Dow Jones Industrial Average lost 141 points, or 0.5 percent. Analysts said the Fed's downgraded outlook for the economy might have alarmed investors.
"We think the Fed's forecasts are still too upbeat," said Michael Pearce, senior U.S. economist at Capital Economics, saying he thinks sluggish growth will lead the Fed to start cutting rates early next year.
The Fed's decision Wednesday was approved on an 11-0 vote.
Still, stock prices have been generally surging since early January, when Powell abruptly reversed course and made clear that the Fed was in no hurry to raise rates and would likely slow the runoff from its balance sheet.
And while stocks struggled Wednesday, the Fed's plans for no credit tightening this year sent Treasury yields tumbling, with the 10-year yield touching its lowest level in more than a year. The yield reached 2.53 percent, down from 2.61 percent late Tuesday and 3.2 percent late last year.
The Fed's policymakers have clearly settled on the belief that more than a decade after they cut their benchmark rate to a record low near zero - and kept it there for seven years - that rate has now reached what's called "neutral": neither stimulating nor restraining economic growth.
The central bank's pause in credit tightening is a response, in part, to slowdowns in the U.S. and global economies. It says that while the job market remains strong, "growth of economic activity has slowed from its solid rate in the fourth quarter."
Some Fed watchers have said they think the next rate move could be a cut later this year if the economy slows as much as some fear it might. But at his news conference, Powell played down that prospect.
"It is a great time for us to be patient and to watch and wait," Powell said, invoking the theme he has sounded in recent months.
In its statement, the Fed laid out a plan for stemming the reduction of its balance sheet: In May, it will slow its monthly reductions in Treasurys from $30 billion to $15 billion and end the runoff altogether in September. Starting in October, the Fed will shift its runoff of mortgage bonds into Treasurys so its overall balance sheet won't drop further.
The Fed had aggressively bought mortgage and Treasury bonds after the 2008 financial crisis to help cut borrowing rates, spur lending and stimulate growth. With the economy now much stronger, the Fed has been gradually shrinking its bond portfolio. But now it's prepared to slow and then stop that process to avoid putting upward pressure on loan rates.
The central bank's new embrace of patience and flexibility reflects its response since the start of the year to slow growth at home and abroad, a nervous stock market and persistently mild inflation. The Fed executed an abrupt pivot when it met in January by signaling that it no longer expected to raise rates anytime soon.
The shift toward a more hands-off Fed and away from a policy of steadily tightening credit suggests that the policymakers recognize that they went too far after they met in December. At that meeting, the Fed approved a fourth rate hike for 2018 and projected two additional rate increases in 2019. Powell also said he thought the balance sheet reduction would be on "automatic pilot."
That message spooked investors, who worried about the prospect of steadily higher borrowing rates for consumers and businesses and perhaps a further economic slowdown. The stock market had begun falling in early October and then accelerated after the Fed's December meeting.
President Donald Trump, injecting himself not for the first time into the Fed's ostensibly independent deliberations, made clear he wasn't happy, calling the December rate hike wrong-headed. Reports emerged that Trump was even contemplating trying to fire Powell, who had been his hand-picked choice to lead the Fed.
But after the December turmoil, the Fed in January began sending a more comforting message. At an economic conference soon after New Year's, Powell stressed that the Fed would be "flexible" and "patient" in raising rates.
Powell, appearing last week on CBS's "60 Minutes," denied that pressure from Trump had influenced the Fed's policy shift. Private economists generally agree that a slowing economy and a sinking stock market, which eased Fed worries about any possible stock bubble, were more decisive factors.
EW YORK (AP) - So much for those worries about rising interest rates.
Just a few months ago, rising rates were bearing down on everyone from home buyers to stock investors after the Federal Reserve put through seven quarter-point increases in 2017 and 2018.
This year, the Fed has changed course. In January, it opened the door to a "patient" approach to further rate increases. Then on Wednesday the central bank surprised the market when it said it may not raise rates at all during 2019.
The move - or anticipated lack of moves - reverberated immediately through the bond market, and the yield on the 10-year Treasury note tumbled to its lowest level in more than a year. It fell as low as 2.52 percent, down from 2.61 percent late Tuesday and from more than 3.20 percent as recently as November, as traders priced in expectations for a slower economy and tame inflation, as well as this very patient Fed.
The impact should soon filter out to consumers across the economy, and the effects will likely remain for a while. The yield on the 10-year Treasury, which influences rates for all kinds of consumer loans, could drift higher over the next year, but it's not likely to cross above 2.75 percent, said Ed Al-Hussainy, senior currency and rates analyst at Columbia Threadneedle Investments. That would mean rates for the next year would remain lower than they've been for much of the past year.
"The Fed no longer has an appetite for tightening rates above" a level that would slow the economy, Al-Hussainy said. "That signal is quite strong right now and lowers the ceiling for 10-year yields."
Here's a look at some of the move's beneficiaries:
When the Fed was busy raising interest rates for much of the last few years, rates on credit-card borrowing were quick to follow. Experts say these rates are the most sensitive to changes in the federal funds rate, so the Fed's move Wednesday should bring relief, at least from further increases.
The average rate on credit-card accounts that were charged interest was 16.86 percent in the last three months of 2018, according to the Federal Reserve. That's up from 14.99 percent a year earlier.
"The pause by the Fed will be a relief for those carrying large credit card balances as it will keep their payments from rising further," said Chris Gaffney, president of world markets at TIAA Bank.
- HOME BUYERS, HOME OWNERS
A drop in mortgage rates would be welcome for buyers as they head into the spring home buying season.
The average rate on a 30-year fixed mortgage has been trending down since November, falling with Treasury yields. It was at 4.28 percent this week, down from 4.94 percent a little before Thanksgiving. Wednesday's tumble for Treasury yields indicates mortgage rates have room to fall further.
Such an easing would be welcome help for the housing market, which struggled last year as potential buyers got priced out by rising mortgage rates. It could also mean opportunities for people who already own homes and are looking to refinance.
- STOCK INVESTORS
Lower interest rates can encourage borrowing and more economic growth, and stock investors are nervously scrounging for the latter given a slowing global economy.
Lower rates can also make stocks more attractive as investments because they make the competition look worse: A Treasury bought today will pay less in interest than one bought before. Stocks that pay high dividends can get a particularly big boost from low rates because their payouts look more lucrative.
Of course, lower rates are not a panacea. They hurt savers and retirees who had just started to enjoy higher rates on their money-market accounts and bonds following years of earning very little.
Low rates also raise the risk of inflating prices for investments into bubbles, such as those that ultimately led to the crashes of tech bubble in 2000 and the housing bubble in 2008.
"We're in a very different world today," Fed Chairman Jerome Powell told reporters at a news conference, stressing that the Fed is now carefully monitoring financial conditions and stability in ways that it didn't previously.
AP Business Writers Josh Boak and Sarah Skidmore Sell contributed to this report.