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Fed: “Sustained Expansion” Ahead for U.S. Economy

Fed Rates

Jerome Powell, the Chair of the U.S. Federal Reserve, said Wednesday [1], according to Reuters, that negative interest rates aren’t appropriate for an economy continuing to grow, an active labor market, and steady inflation. 

“Our economy is in a strong position. We have growth, we have a strong consumer sector, we have inflation ... You tend to see negative rates in the larger economies at times when growth is quite low, and inflation is quite low. That’s just not the case here,” Powell said.

Powell added that the impact of the three rate cuts this year are still to be felt in supporting household and business spending. He said the Fed isn’t likely to make any further changes unless there is a “material” change in the economy. 

“We see the current stance of monetary policy as likely to remain appropriate with our outlook of moderate economic growth, a strong labor market, and inflation near our symmetric 2% objective,” Powell said. “The baseline outlook remains favorable ... My colleagues and I see a sustained expansion of economic activity ... as most likely.”

The Fed cut interest rates for the third time [2] in 2019 in October, dropping its benchmark lending rate for Federal funds to 1.5% to 1.75%. 

Doug Duncan, Chief Economist with Fannie Mae, said the Fed cited “implications of global developments,” as the rationale for the cut. 

Jarred Kessler, CEO of EasyKnock, said that expecting the economy to respond positively to declines in interest rates doesn’t always work out. 

“Lowering rates doesn’t always have the economic impact we think, or expect it to have because it disrupts the natural economic ecosystem," Kessler said. "Just look at Japan, it can drive housing growth and a push in the stock market, but other facets of the economy are bound to lose. In the longer term this along with inflation can have a very negative impact."

However, a report by CNN [3] in October said the housing needs to keep improving to "keep the current recovery alive."

"With homebuilder sentiment so strong, it's hard to imagine that the economy is on the cusp of a downturn," said analysts at Bespoke Investment Group in the CNN report.

CNN added that “there seems to be no end in sight” to the housing boom in many parts of the U.S.

Additionally, CNN says that historically-low mortgage rates is a key factor in housing growth in 2019.