U.S. Federal Reserve kept interest rates on hold and said there would be no interest rate hike in 2019. Fed, while forecasting one interest rate increase till 2021, was more dovish than expected as economic slowdown was underlined. Fed also stated that balance sheet reduction will be decreased gradually and then will come to an end in September. In the meanwhile, U.S. President Donald Trump said tariffs will likely stay in place for a substantial period of time even if the U.S. and China reach a trade deal and added he needs to make sure China keeps the promises on their side of a possible deal. By the way, EU Council President Donald Tusk said, EU leaders will back an extension only if British MPs support current Brexit deal, following Theresa May’s announcement that she had written a letter for an extension to Article 50 till 30th of June.
Gold prices hit 3-week high while dollar index fell as low as 95,82 after Fed kept interest rates on hold and predicted no rate hikes in 2019.
As of 14:31 GMT+3, spot gold was trading at $1,315.97 an ounce while dollar index was at 96.21. U.S. 10-year Treasury bill was lower to 2.510.
Fed was more dovish than expected as policymakers kept interest rates on hold on Wednesday after two-day meeting and indicated no interest rate hikes this year as Fed revised December projections showing two rate hikes in 2019. Fed reiterated patient approach to monetary policy as they now see only one rate hike in 2020. Fed also said balance sheet reduction would be slowed down gradually beginning from May and program would come to an end in September. Besides, economic projections were revised as well and Fed now expects 2019 growth to be 2.1% while inflation expectation is lower to 1.8%, from 1.9% and unemployment rate is expected to be slightly higher to 3.7%
Following the statement, Fed Chair Jerome Powell said economy was slowing down faster than expected and they would keep being patient as they watch economic indicators. He underlined weakness in inflation while adding wage growth was not weighing on prices. Powell also mentioned about global slowdown and said “European economy has slowed substantially, so has the Chinese economy, although the European economy more.”
In the meantime, U.S. President Donald Trump said on Wednesday that tariffs would likely stay in place even if two countries reached a trade deal because he wanted to make sure China kept the promises on their side of a possible trade deal. This came after it was claimed that Chinese officials changed their stance for trade talks and stepped back from initial promises on important issues due to U.S. reluctance to lift tariffs completely. Two countries’ representatives will be meeting in China next week to resume trade talks. According to The Wall Street Journal, trade talks was in final stages and two leaders would likely be meeting in late April to reach a final deal.
No-Deal Brexit is back on table as EU Council President Donald Tusk said “EU leaders will back an extension only if Brexit deal passes” through British parliament, following British Prime Minister Theresa May said on Wednesday that she had written a letter to request an extension of Article 50. Germany Foreign Minister Heiko Maas said they would like to know what the purpose is for an extension while France Foreign Minister said there were only two ways to leave the EU, either with deal or no-deal. He added if May could not present “sufficient guarantees of credibility of her strategy,” then UK would be leaving the EU without a deal.