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Federal Reserve signals no interest rate cuts even in 2020

The Federal Reserve made no change to its target interest rate at its December meeting, saying the economy remains strong — so strong that few central bank officials currently see any need to cut interest rates over the next 12 months. 

"Job gains have been solid, on average, in recent months, and the unemployment rate has remained low. Although household spending has been rising at a strong pace, business fixed investment and exports remain weak," the Fed said in a statement released Wednesday.

The current target rate, set to a range between 1.5% to 1.75%, affects the interest charges on a broad range of commercial loans and government bonds.

Fed Chairman Jerome Powell told reporters he would focus on boosting inflation, which has long undershot the 2% target set by the central bank.

"I think we've learned that unemployment can remain at very low levels for extended periods of time without upward pressure on prices," Powell said. "In fact, we need some upward pressure on inflation."

Personal consumption expenditures — the Fed's preferred measure of inflation — have been increasing at a rate between 1.3% and 1.8% this year. Another measure of inflation shows that consumer prices have increased at a rate just above 2%, excluding spending on food and energy, which can shift sharply.

The central bank cut rates three times this year, responding to the effects of the U.S.-China trade war and a modest slowdown in economic growth, after raising rates four times in 2018.

The Fed doesn't expect its target rate to drop any further, according to projections it released Wednesday. A majority of members on its rate-setting body expect the rate to stay at its current level in 2020, while a handful expect it to rise by a quarter of a percentage point over the next 12 months.

Some investors had hoped for further rate cuts, which would boost stock prices. President Donald Trump has also pressured the Fed repeatedly to cut rates. But such a move appears unlikely for some time.

"[G]iven the strong desire of the Fed to remain independent and outside the political realm, they are extremely unlikely to make any rate changes prior to next November's presidential election," Chris Zaccarelli, chief investment officer for Independent Advisor Alliance, said in a note.

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