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U.S. Fed stresses patience in rate hikes

WASHINGTON
2019-02-23 16:58

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U.S. Federal Reserve said on Friday that the economy needs "further gradual removal of policy accommodation", even though financial conditions become "less supportive".

"Domestic financial conditions for businesses and households have become less supportive of economic growth since July," said the Fed, adding that financial market participants' appetite for risk deteriorated markedly.

Even though the Fed saw tightness in the market, there are no signs that the Fed has any intention to reverse the course of tightening.

"Current and prospective economic conditions called for a further gradual removal of policy accommodation," said the Fed in the report.

"For the end of 2019, the median of federal funds rate projections was 2.88 percent, consistent with two 25 basis point rate increases over the course of 2019," said the Fed.

Meanwhile, the Fed noted that the medians of the projections were 3.13 percent at the end of 2020 and 2021.

Even though financial status was further tightened, the Fed affirmed that U.S. financial system remains "substantially more resilient" than before the financial crisis, while pressures associated with asset valuations eased in comparison with half a year ago.

Tightness was also seen in the financial markets outside the United States, according to the Fed's report.

"Financial conditions abroad tightened in the second half of 2018, in part reflecting political uncertainty in Europe and Latin America, trade policy developments in the United States and its trading partners, as well as concerns about moderating global growth," said the Fed.

In light of softer global economic and financial conditions late in the year and muted inflation pressures, during the January meeting, the Fed decided that "it will be patient as it determines what future adjustments to the federal funds rate may be appropriate."

The Fed also reaffirmed that inflation in the United States remained muted at the rate of 2 percent. In its current projections, the Fed said that the median of the longer-run normal rate of unemployment was 4.4 percent.
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