Archive for Economics & Fundamentals

This week in monetary policy: Kyrgyzstan, Hungary, Nigeria, New Zealand, Kenya, Jamaica, Fiji, Czech Rep., Albania, South Africa, Egypt, Mexico, Bulgaria, Angola, Chile, Trinidad & Tobago and Dominican Rep.

By CentralBankNews.info

    This week – March 24 through March 30 – central banks from 17 countries or jurisdictions are scheduled to decide on monetary policy: Kyrgyz Republic, Hungary, Nigeria, New Zealand, Kenya, Jamaica, Fiji, Czech Republic, Albania, South Africa, Egypt, Mexico, Bulgaria, Angola, Chile, Trinidad & Tobago, and Dominican Republic.
    Following table includes the name of the country, the date of the next policy decision, the current policy rate, the result of the last policy decision, the change in the policy rate year to date, and the rate one year ago.
    The table is updated when the latest decisions are announced and can always accessed by clicking on This Week.
WEEK 13
MAR 24 – MAR 30, 2019:
COUNTRY                    DATE                      RATE                 LATEST                     YTD               1 YR AGO
KYRGYZSTAN 25-Mar 4.50% -25 -25 5.00%
HUNGARY 26-Mar 0.90% 0 0 0.90%
NIGERIA 26-Mar 14.00% 0 0 14.00%
NEW ZEALAND 27-Mar 1.75% 0 0 1.75%
KENYA 27-Mar 9.00% 0 0 9.50%
JAMAICA 27-Mar 1.50% -25 -25 2.75%
FIJI 28-Mar 0.50% 0 0 0.50%
CZECH REPUBLIC 28-Mar 1.75% 0 0 0.75%
ALBANIA 28-Mar 1.00% 0 0 1.25%
SOUTH AFRICA 28-Mar 6.75% 0 0 6.50%
EGYPT 28-Mar 15.75% -100 -100 16.75%
MEXICO 28-Mar 8.25% 0 0 7.50%
BULGARIA 29-Mar 0.00% 0 0 0.00%
ANGOLA 29-Mar 15.75% -75 -75 18.00%
CHILE 29-Mar 3.00% 25 25 2.50%
TRINIDAD & TOBAGO 29-Mar 5.00% 0 0 4.75%
DOMINICAN REP. 29-Mar 5.50% 0 0 5.25%

This week in monetary policy: Kyrgyzstan, Hungary, Nigeria, New Zealand, Kenya, Jamaica, Fiji, Czech Rep., Albania, South Africa, Egypt, Mexico, Bulgaria, Angola, Chile, Trinidad & Tobago and Dominican Rep.

By CentralBankNews.info

    This week – March 24 through March 30 – central banks from 17 countries or jurisdictions are scheduled to decide on monetary policy: Kyrgyz Republic, Hungary, Nigeria, New Zealand, Kenya, Jamaica, Fiji, Czech Republic, Albania, South Africa, Egypt, Mexico, Bulgaria, Angola, Chile, Trinidad & Tobago, and Dominican Republic.
    Following table includes the name of the country, the date of the next policy decision, the current policy rate, the result of the last policy decision, the change in the policy rate year to date, and the rate one year ago.
    The table is updated when the latest decisions are announced and can always accessed by clicking on This Week.
WEEK 13
MAR 24 – MAR 30, 2019:
COUNTRY                    DATE                      RATE                 LATEST                     YTD               1 YR AGO
KYRGYZSTAN 25-Mar 4.50% -25 -25 5.00%
HUNGARY 26-Mar 0.90% 0 0 0.90%
NIGERIA 26-Mar 14.00% 0 0 14.00%
NEW ZEALAND 27-Mar 1.75% 0 0 1.75%
KENYA 27-Mar 9.00% 0 0 9.50%
JAMAICA 27-Mar 1.50% -25 -25 2.75%
FIJI 28-Mar 0.50% 0 0 0.50%
CZECH REPUBLIC 28-Mar 1.75% 0 0 0.75%
ALBANIA 28-Mar 1.00% 0 0 1.25%
SOUTH AFRICA 28-Mar 6.75% 0 0 6.50%
EGYPT 28-Mar 15.75% -100 -100 16.75%
MEXICO 28-Mar 8.25% 0 0 7.50%
BULGARIA 29-Mar 0.00% 0 0 0.00%
ANGOLA 29-Mar 15.75% -75 -75 18.00%
CHILE 29-Mar 3.00% 25 25 2.50%
TRINIDAD & TOBAGO 29-Mar 5.00% 0 0 4.75%
DOMINICAN REP. 29-Mar 5.50% 0 0 5.25%

This week in monetary policy: Kyrgyzstan, Hungary, Nigeria, New Zealand, Kenya, Jamaica, Fiji, Czech Rep., Albania, South Africa, Egypt, Mexico, Bulgaria, Angola, Chile, Trinidad & Tobago and Dominican Rep.

By CentralBankNews.info

    This week – March 24 through March 30 – central banks from 17 countries or jurisdictions are scheduled to decide on monetary policy: Kyrgyz Republic, Hungary, Nigeria, New Zealand, Kenya, Jamaica, Fiji, Czech Republic, Albania, South Africa, Egypt, Mexico, Bulgaria, Angola, Chile, Trinidad & Tobago, and Dominican Republic.
    Following table includes the name of the country, the date of the next policy decision, the current policy rate, the result of the last policy decision, the change in the policy rate year to date, and the rate one year ago.
    The table is updated when the latest decisions are announced and can always accessed by clicking on This Week.
WEEK 13
MAR 24 – MAR 30, 2019:
COUNTRY                    DATE                      RATE                 LATEST                     YTD               1 YR AGO
KYRGYZSTAN 25-Mar 4.50% -25 -25 5.00%
HUNGARY 26-Mar 0.90% 0 0 0.90%
NIGERIA 26-Mar 14.00% 0 0 14.00%
NEW ZEALAND 27-Mar 1.75% 0 0 1.75%
KENYA 27-Mar 9.00% 0 0 9.50%
JAMAICA 27-Mar 1.50% -25 -25 2.75%
FIJI 28-Mar 0.50% 0 0 0.50%
CZECH REPUBLIC 28-Mar 1.75% 0 0 0.75%
ALBANIA 28-Mar 1.00% 0 0 1.25%
SOUTH AFRICA 28-Mar 6.75% 0 0 6.50%
EGYPT 28-Mar 15.75% -100 -100 16.75%
MEXICO 28-Mar 8.25% 0 0 7.50%
BULGARIA 29-Mar 0.00% 0 0 0.00%
ANGOLA 29-Mar 15.75% -75 -75 18.00%
CHILE 29-Mar 3.00% 25 25 2.50%
TRINIDAD & TOBAGO 29-Mar 5.00% 0 0 4.75%
DOMINICAN REP. 29-Mar 5.50% 0 0 5.25%

Paraguay cuts rate 2nd month in row, still data-dependent

By CentralBankNews.info
     Paraguay’s central bank lowered its policy rate for the second month in a row to ensure inflation moves towards its target as the latest economic data shows a deceleration in the pace of growth in parts of the economy.
     The Central Bank of Paraguay (BCP) cut its rate by another 25 basis points to 4.75 percent and has now cut it by 50 points this year following a cut in February.
     Since May 2016 BCP has cut its rate five times and by a total of 125 basis points.
     As in February, BCP said the next policy decision will depend on economic data, both internal and external, and its monetary policy committee was again unanimous in its policy decision.
     In its statement, BCP noted the downside risks in the international economy and the U.S. Federal Reserve’s more conservative stance regarding the pace of monetary changes.
     Within South America, BCP said Argentina’s economic situation remains complex although stabilization measures have been put in place while the economic recovery in Brazil is slower than expected.
     Inflation in Paraguay has mainly stabilized but remains at a low level, BCP said.
     Paraguay’s headline inflation rate rose slightly to 2.7 percent in February from 2.4 percent in January but remains well below BCP’s target of 4.0 percent.
     Earlier this month the International Monetary Fund said Paraguay’s economy had grown rapidly in the past 15 years – an average of 4.5 percent –  helping reduce poverty, with prudent macroeconomic policies, low inflation and low fiscal deficits playing an important role,
     Going forward, the IMF said the key challenge will be to sustain this growth as the boom in agricultural commodities may provide less support going forward.
     Last year Paraguay’s economy grew 3.75 percent, driven by strong domestic demand that was fueled by a rebound in credit growth, but growth was uneven as the economy was hit by spillovers from regional financial turbulence.
     Argentina’s financial crises led to a risk aversion against the region, hitting Paraguay’s guarani, although by less than the fall seen in Argentina’s peso. The result was the guarani rose against the peso and Brazil’s real, hitting tourism from those countries and trade.
     This year the IMF expects Paraguay’s economy to expand around 3.5 percent, with a drought expected to reduce the soybean harvest but this should be partly offset by a pickup in tourism and trade as the exchange rate shocks from 2018 unwinds.
     IMF said BCP’s monetary policy stance appeared appropriate, with inflation set to move back to 4.0 percent by the end of the year last year’s rise in the guarani reverses.
     Against the U.S. dollar the guarani lost 5.9 percent in 2018 and it has continued to lose ground this year and was trading at 6,152 to the dollar today, down 3.3 percent this year.

    www.CentralBankNews.info

COFFEE Analysis: Expectations of good crop bearish for coffee

By IFCMarkets

Expectations of good crop bearish for coffee

Ample world coffee supply expectations weigh on coffee market. Will the coffee prices continue declining?

Coffee prices are under pressure as favorable weather conditions in main producers countries indicate building of ample global supply. Brazil rainfall reports in most of coffee districts support the view of ample good new crop of 2019 in top world producer country. Farmers in Vietnam, second largest world coffee producing country, complain of falling profits as prices decline. And in Indonesia, the fourth biggest coffee producer, supplies from the mini harvest in the southern part of Sumatra this week rose 10-15 percent from last week, according to Reuters. Expectations of ample global supply are bearish for coffee prices.

Coffee falling below MA(50) 03/22/2019 Technical Analysis IFC Markets chart

On the daily timeframe the Coffee: D1 is below the 50-day moving average MA(50) which is falling, this is bearish.

  • The Parabolic indicator gives a sell signal.
  • The Donchian channel indicates downtrend: it is narrowing down.
  • The MACD indicator gives a bearish signal: it is below the signal line and the gap is widening.
  • The RSI oscillator is rising but has not breached into overbought zone yet.

We believe the bearish momentum will continue after the price breaches below the lower boundary of Donchian channel at 95.51. This level can be used as an entry point for placing a pending order to sell. The stop loss can be placed above the last fractal high at 99.54. After placing the order, the stop loss is to be moved every day to the next fractal high, following Parabolic signals. Thus, we are changing the expected profit/loss ratio to the breakeven point. If the price meets the stop loss level (95.51) without reaching the order (99.54), we recommend cancelling the order: the market has undergone internal changes which were not taken into account.

Technical Analysis Summary

Position Sell
Sell stop Below 95.51
Stop loss Above 99.54

Market Analysis provided by IFCMarkets

The Difference Between Swing Trading & Day Trading

By Orbex

Swing trading and day trading are two terms that any trader will probably have come across at some point. Although the goal of both these methods of trading is the same, the approach is a bit different.

Some might argue that swing trading is better than day trading or vice versa. But these opinions differ depending on the type of trader in question. Both these methods come with their own pros and cons. In fact, swing trading is quite different from day trading and requires not just a different approach but a totally different mindset as well.

In this article, we take a look at some of the differences between day trading and swing trading. We’ll also outline some scenarios where one type of trading is better than the other.

What is Swing Trading?

Swing trading is primarily trading in the medium term. In this approach, you are trading the key swings in price of the instrument, such as the short or medium term trends.

Swing trading requires you to keep your positions open overnight, spanning from a few days to a week or two.

The methodology used for swing trading is a bit different. In some markets, swing trading is more preferable due to market behavior.

What is Day Trading?

Day trading, also known as intraday trading, is when you trade the forex markets during the day or the trading hours. This type of trading is very short term and your positions are closed before the end of the day.

Most beginners often prefer to use the day trading approach. This is due to the relative ease of day trading.

However, as you will understand in the next sections of this article, there are some key differences between these two types of trading methods.

The Differences 

Here are a few of the most important differences between swing trading and day trading.

Time Frames and Duration

The time frames used for swing trading vastly differ from day trading. If you were to swing trade, your primary time frame could be the 4-hour chart and higher.

Although there are instances where you might make use of a smaller time frame, your primary decision making comes from the longer-term charts.

With swing trading, your eventual goal is to capture the medium-term trends in the instrument. This would mean having to keep your positions overnight in order to achieve the price target.

With day trading, on the other hand, you are focusing more on the day-to-day volatility of the asset or instrument that you are trading. It is quite likely that your trading is done during the business hours.

Profit and Loss

The profit and loss levels can vary significantly between these two types of trading methods. With swing trading, your profit and loss levels can be quite big compared to those set on a day trading strategy.

Therefore, swing trading requires quite a bit of familiarity with position and risk management. Traders will need to nurture their trades and constantly adjust their positions overnight.

With day trading, your profit or loss is achieved during the intraday sessions. This means that towards the close of the trading session, your positions would be zero, most of the times.

However, the major difference comes from the profits or losses made during the course of the trade. Typically, swing traders set much bigger take profit and stop loss levels compared to day traders. This is due to the nature of the methods involved.

If you want to target big swings in price, then you need to allow enough breathing space for your trades when it comes to swing trading.

Market Swings

Because swing trading requires you to trade overnight, there are significant risks behind this. For one, slow trading hours can lead to widening spreads. This could potentially increase the risk of your stop or profit levels being hit at different prices than what you intended.

Erratic price action, which is also prevalent during off-market hours, is another big risk that swing traders need to take into account.

Of course, that is not to say that day traders are better off. There are moments when even during peak trading hours, you can come across very volatile markets. However, given that day traders manage their positions during the trading hours, it is a bit easier to handle.

Overtrading or Trade Volumes

With day trading, there is a risk of overtrading. This can happen from time to time, especially if price tends to move in one direction for prolonged periods of time. But there are risks involved when it comes to over trading as well.

For example, if you are in a winning streak, there are higher chances that the more you trade, the more emotionally involved you become. You could also get biased to the trades and this could lead to big losses if price turns around.

With swing trading, given the fact that your positions are kept open over a number of days, the risks of overtrading lessen. But that is not to say that swing trading will completely wean you off overtrading. There are some traders who open multiple positions across different markets and instruments with swing trading as well.

Trading Costs

There is no way to avoid trading costs, regardless of whether you are a swing or day trader. When you day trade, chances are that you are either paying commissions on the positions you open and close or paying the spread.

When you swing trade, you would be paying (or receiving) overnight swap rates as well, besides paying commissions or spreads on your trades.

No matter which way you look at it, there are costs involved with both swing trading and day trading. However, if you are an active day trader, there is a good chance that you end up paying more based on the number of trades you make per day.

In some markets such as futures, for example, swing trading incurs additional fees such as having to maintain a certain amount of capital in margin. These margin levels are higher compared to just day trading.

Trading Strategies

There is also a good chance that a swing trading strategy is quite different from the strategy you would use for day trading. Therefore, traders need to hone their skills even on the trading strategies that they employ.

There are some strategies that work well in both methods of trading, but to be consistently profitable, swing traders use completely different methods of technical analysis compared to day traders. There are some exceptions, of course, such as price action based patterns.

Trading strategies also tie into the profit and loss levels. Swing trading strategies often require bigger profit and stop loss levels compared to day trading.

Swing Trading vs. Day Trading – Which is better?

The answer to this depends entirely on a trader and their familiarity with the markets they are trading. Not to forget, the answer also depends on one’s risk tolerance, patience and the time that goes into it. Swing trading requires traders to be patient and overlook the day-to-day volatility.

For day traders, it is the daily volatility that matters which enables them to trade effectively.

Both the methods of trading share the same bottom line, which is to make profits from the markets you trade. It is the approach that differs.

By Orbex

 

BoE Stands Still Amidst “Fog of Brexit”

Article by ForexTime

The Bank of England unanimously stood pat on UK interest rates at 0.75 percent, as Brexit uncertainties continue to swirl around the UK outlook. While the Federal Reserve and European Central Bank have likened monetary policy adjustments to taking small steps in a dark room, Mark Carney and co. appear to have their feet bound tight, unable to move amid arguably more pronounced and immediate risks to the UK economy.

The UK central bank, like global markets, are still left waiting for clarity on when and how Brexit will happen, even as the scheduled departure date remains as March 29 at the time of writing. Should the remaining week till the current deadline offer a concrete resolution to the Brexit saga, only then can the BoE have a clearer outlook on monetary policy, and global investors have a firmer handle on the Pound.

Disclaimer: The content in this article comprises personal opinions and should not be construed as containing personal and/or other investment advice and/or an offer of and/or solicitation for any transactions in financial instruments and/or a guarantee and/or prediction of future performance. ForexTime (FXTM), its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness, of any information or data made available and assume no liability as to any loss arising from any investment based on the same.


Forex-Time-LogoArticle by ForexTime

ForexTime Ltd (FXTM) is an award winning international online forex broker regulated by CySEC 185/12 www.forextime.com

Norway raises rate 25 bps, next hike likely in 6 months

By CentralBankNews.info
     Norway’s central bank raised its policy rate for the second time in the current tightening cycle and said it was likely to raise it again during the next 6 months to curb inflation from faster-than-expected economic growth and a weaker krone.
     Norges Bank (NB) raised its key rate by 25 basis points to 1.0 percent and has now raised it by a total of 50 basis points since September 2018 when the rate was raised for the first time in 7 years.
      The rate hike was well-telegraphed after the central bank in December said it was likely to raise the rate today and continue to raise the rate as it unwinds its accommodative monetary policy stance.
     “Our current assessment of the outlook and balance of risks suggests that the policy rate will most likely be increased further in the course of the next half-year,” NB Governor Oeystein Olsen said in a statement.
     In an update to its quarterly monetary policy report, the central bank raised its forecast for the policy rate over the next few years from its December report but lowered it slightly further out, with the upward shift reflecting stronger domestic demand and a weaker exchange rate of the krone.
     The downward revision of the rate path reflects the prospects for lower growth and a more gradual rate rise among Norway’s trading partners, changes illustrated by the recent dovish shifts by major central banks, such as the U.S. Federal Reserve, the European Central Bank and the Bank of Canada.
     NB’s policy rate is now seen averaging 1.1 percent this year, up from December’s forecast of 1.0 percent, and 1.6 percent in 2020, up from 1.4 percent previously forecast.
     But for 2021 the rate is forecast to average 1.7 percent, down from 1.8 percent, and then remaining at that level in 2022.
     “The uncertainty surrounding global developments and the effects of monetary policy suggest a cautious approach to interest rate setting,” Olsen said.
     While the global economy has slowed in recent months, Norway’s oil-fueled economy has been expanding at a solid pace since 2016, with capacity utilization now slightly above normal.
     In the fourth quarter of last year, Norway’s economy expanded by an annual 1.7 percent and NB’s regional March survey this showed firms expect growth to remain firm over the next 6 months on higher oil investment, digitalization and high public investment.
     Illustrating the upward pressure on inflation from the strong economy, the survey showed rising capacity utilization and employment, with annual wage growth estimated of 3.0 percent.
     NB raised its forecast for economic growth in the mainland, which excludes the oil shelf in the North Atlantic, to 2.7 percent this year from a previous 2.3 percent and 2018’s 2.5 percent, supported by steady increases in both household consumption and business investment.
     Investments in petroleum extraction and pipelines is especially strong this year, seen up 12.5 percent from last year, an upward revision by 2.0 percent.
     Further out, these oil-related investments are seen declining and lower growth abroad will weigh on Norway’s economy.
     For 2020 NB sees overall economic growth in Norway of 1.8 percent, up from 1.6 percent, but then 1.2 percent in 2021, down from 1.4 percent, and 1.5 percent in 2022.
    Headline inflation in Norway has topped the central bank’s 2.0 percent target since February 2018 and was steady at 3.5 percent for the second consecutive month in February. Core inflation jumped in February to 2.6 percent from 2.1 percent in the previous two months.
     A weaker than expected krone in 2018 has also put upward pressure on inflation.
     But over the last week the krone has reversed course and it received another boost following the Federal Reserve’s forecast on Wednesday that it would keep the fed funds rate on hold this year and stop shrinking its balance sheet by October.
     The krone was trading at 8.44 per U.S. dollar today, up 3.2 percent this year.

     Norges Bank released the following press release:

“Norges Bank’s Executive Board has decided to raise the policy rate by 0.25 percentage point to 1.0 percent.
The Norwegian economy is expanding at a solid pace, and capacity utilisation now appears to be slightly above a normal level. Underlying inflation is a little higher than the inflation target. The uncertainty surrounding global developments and the effects of monetary policy suggests a cautious approach to interest rate setting. Overall, the outlook and the balance of risks imply a gradual interest rate increase ahead.
The upturn in the Norwegian economy appears to be stronger than anticipated earlier. On the other hand, there are prospects for weaker growth and lower interest rates abroad. The policy rate forecast indicates a slightly faster rate rise in 2019 and a somewhat lower policy rate further out than projected in the previous Report. With this path for the policy rate, inflation is projected to be close to target in the years ahead, at the same time as unemployment remains low. The policy rate path will be adjusted in response to changes in economic prospects.
“Our current assessment of the outlook and balance of risks suggests that the policy rate will most likely be increased further in the course of the next half-year”, says Governor Øystein Olsen.”

Downbeat Fed to encourage further investments into emerging markets

Article by ForexTime

The recovery that emerging markets have managed to build throughout the first quarter of 2019 is set to extend further after the downbeat tone that was presented by the Federal Reserve after its latest monetary policy meeting. Interest rate expectations in the United States will be significantly downgraded after the comments made by Jerome Powell, in which the Fed Chair strongly indicated that interest rates will remain on hold for some time and that it ultimately appears that the Federal Reserve will extend its narrative around the need for “patience” over the coming months.

Pushed back US interest rate expectations will be enough to fuel some unwinding of Dollar positions from a Greenback that remains at historically high levels, and the immediate reaction will be that this benefits the likes of the Euro and Japanese Yen. Weakness in the Dollar will also prove supportive to Gold, but where I see the real opportunities for investors are in emerging markets. This includes both emerging market stocks and emerging market currencies. Returning capital into emerging markets will also be a headline that catches further steam moving forward.

Returning investor capital and inflows into emerging markets is a trend that will catch further popularity throughout the developing world and across different continents. This will stretch across the likes of China, South Africa and Saudi Arabia. We should also not discount the momentum that emerging market currencies should be able to build, when we consider that many of the currencies belonging to the developing world remain significantly weaker than where they were valued in the time before the Fed started monetary tightening four years ago.

I am looking at the prospects of a stronger Indonesian Rupiah, Chinese Yuan and Malaysian Ringgit as a result of the dovish Fed message. The Singapore Dollar will also be encouraged by a softer Greenback, while the South Korean Won will be watched after it has lagged behind its Asian counterparts so far in 2019. When it comes to the African continent I would look for a momentum shift in the South African Rand as a result of reversed interest rate optimism in the United States.

What will be concerning investors behind their trading desks is that it can’t be denied that there is a coordinated downbeat view that is being presented by central banks and senior officials across the globe this year. The Fed have certainly now joined this party by issuing their own need for patience and that global headwinds remain a threat that need to be closely watched.

Disclaimer: The content in this article comprises personal opinions and should not be construed as containing personal and/or other investment advice and/or an offer of and/or solicitation for any transactions in financial instruments and/or a guarantee and/or prediction of future performance. ForexTime (FXTM), its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness, of any information or data made available and assume no liability as to any loss arising from any investment based on the same.


Forex-Time-LogoArticle by ForexTime

ForexTime Ltd (FXTM) is an award winning international online forex broker regulated by CySEC 185/12 www.forextime.com

US Fed holds rate, slashes forecast for hikes to 0 in 2019

By CentralBankNews.info

The U.S. Federal Reserve left its benchmark federal funds rate steady at 2.25 – 2.50 percent, as widely expected, but acknowledged economic activity has slowed and slashed its forecast for the rate path this year through 2021, with the rate seen on hold for the rest of this year.

The Federal Open Market Committee (FOMC), the Fed’s policy-making body, forecast the fed funds rate would average 2.4 percent this year, sharply down from December’s forecast of 2.9 percent, which had implied 2 rate hikes this year.

In 2020 the Fed expects to raise its rate once to an average of 2.6 percent, down from December’s projection of an average rate of 3.1 percent, and then maintain this rate in 2021.

After raising its rate 9 times since December 2015, the Fed shifted into a more dovish policy stance in early January following a sharp stock market sell-off in December.

In January, when the Fed also kept its rate steady, the Fed said it was ready to adjust the pace of normalization of its balance sheet if economic conditions were to warrant an easier policy.

Since October 2017 the Fed has slowly been shrinking its holdings of some $4 trillions of bonds by allowing $30 billion of Treasuries and $20 billion in mortgage bonds to mature every month.

Today, the Fed said it would slow the redemptions of Treasury bonds to $15 billion a month and then stop the runoff at the end of September.

As far as mortgage bonds, the Fed will let these bonds mature and then from October reinvest the principal payments into Treasuries up to $20 billion a month as it gradually meets its longer-term aim of primarily owning Treasury securities.

In its statement, the FOMC said the labor market remains strong but economic activity has slowed from its solid rate in the fourth quarter of 2018, with data showing slower growth in household spending and business fixed investment in the first quarter.

The U.S. economy began to slow toward the end of last year, with quarterly growth in gross domestic product down to 2.6 percent from the third quarter. On an annual basis, GDP still rose 3.1 percent in the fourth quarter, the 10th consecutive quarter of growth.

As in January, the FOMC said it “will be patient” as it decides on future rate changes in light of global economic and financial developments and muted inflation pressures.

Reflecting the impact on the U.S. economy from the slowdown in Europe and China, the Fed cut its forecast for economic growth this year to 2.1 percent from its previous expectation of 2.3 percent and the 2020 forecast to 1.9 percent from 2.0 percent.

In 2021 growth is expected to decelerate further to 1.8 percent, as forecast in December.

While economic growth still remains solid, inflation has been trending downward since mid-2018, with headline inflation of 1.5 percent in February, largely due to lower energy prices.

As in January, the FOMC was unanimous in its policy decision.

The Board of Governors of the Federal Reserve System released following 3 statements:

“Information received since the Federal Open Market Committee met in January indicates that the labor market remains strong but that growth of economic activity has slowed from its solid rate in the fourth quarter. Payroll employment was little changed in February, but job gains have been solid, on average, in recent months, and the unemployment rate has remained low. Recent indicators point to slower growth of household spending and business fixed investment in the first quarter. On a 12-month basis, overall inflation has declined, largely as a result of lower energy prices; inflation for items other than food and energy remains near 2 percent. On balance, market-based measures of inflation compensation have remained low in recent months, and survey-based measures of longer-term inflation expectations are little changed.
Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. In support of these goals, the Committee decided to maintain the target range for the federal funds rate at 2-1/4 to 2-1/2 percent. The Committee continues to view sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee’s symmetric 2 percent objective as the most likely outcomes. In light of global economic and financial developments and muted inflation pressures, the Committee will be patient as it determines what future adjustments to the target range for the federal funds rate may be appropriate to support these outcomes.
In determining the timing and size of future adjustments to the target range for the federal funds rate, the Committee will assess realized and expected economic conditions relative to its maximum employment objective and its symmetric 2 percent inflation objective. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments.
Voting for the FOMC monetary policy action were: Jerome H. Powell, Chairman; John C. Williams, Vice Chairman; Michelle W. Bowman; Lael Brainard; James Bullard; Richard H. Clarida; Charles L. Evans; Esther L. George; Randal K. Quarles; and Eric S. Rosengren.”
          Balance Sheet Normalization Principles and Plans
In light of its discussions at previous meetings and the progress in normalizing the size of the Federal Reserve’s securities holdings and the level of reserves in the banking system, all participants agreed that it is appropriate at this time for the Committee to provide additional information regarding its plans for the size of its securities holdings and the transition to the longer-run operating regime. At its January meeting, the Committee stated that it intends to continue to implement monetary policy in a regime in which an ample supply of reserves ensures that control over the level of the federal funds rate and other short-term interest rates is exercised primarily through the setting of the Federal Reserve’s administered rates and in which active management of the supply of reserves is not required. The Statement Regarding Monetary Policy Implementation and Balance Sheet Normalization released in January as well as the principles and plans listed below together revise and replace the Committee’s earlier Policy Normalization Principles and Plans.
  • To ensure a smooth transition to the longer-run level of reserves consistent with efficient and effective policy implementation, the Committee intends to slow the pace of the decline in reserves over coming quarters provided that the economy and money market conditions evolve about as expected.
    • The Committee intends to slow the reduction of its holdings of Treasury securities by reducing the cap on monthly redemptions from the current level of $30 billion to $15 billion beginning in May 2019.
    • The Committee intends to conclude the reduction of its aggregate securities holdings in the System Open Market Account (SOMA) at the end of September 2019.
    • The Committee intends to continue to allow its holdings of agency debt and agency mortgage-backed securities (MBS) to decline, consistent with the aim of holding primarily Treasury securities in the longer run.
      • Beginning in October 2019, principal payments received from agency debt and agency MBS will be reinvested in Treasury securities subject to a maximum amount of $20 billion per month; any principal payments in excess of that maximum will continue to be reinvested in agency MBS.
      • Principal payments from agency debt and agency MBS below the $20 billion maximum will initially be invested in Treasury securities across a range of maturities to roughly match the maturity composition of Treasury securities outstanding; the Committee will revisit this reinvestment plan in connection with its deliberations regarding the longer-run composition of the SOMA portfolio.
      • It continues to be the Committee’s view that limited sales of agency MBS might be warranted in the longer run to reduce or eliminate residual holdings. The timing and pace of any sales would be communicated to the public well in advance.
    • The average level of reserves after the FOMC has concluded the reduction of its aggregate securities holdings at the end of September will likely still be somewhat above the level of reserves necessary to efficiently and effectively implement monetary policy.
      • In that case, the Committee currently anticipates that it will likely hold the size of the SOMA portfolio roughly constant for a time. During such a period, persistent gradual increases in currency and other non-reserve liabilities would be accompanied by corresponding gradual declines in reserve balances to a level consistent with efficient and effective implementation of monetary policy.
    • When the Committee judges that reserve balances have declined to this level, the SOMA portfolio will hold no more securities than necessary for efficient and effective policy implementation. Once that point is reached, the Committee will begin increasing its securities holdings to keep pace with trend growth of the Federal Reserve’s non-reserve liabilities and maintain an appropriate level of reserves in the system.”
Decisions Regarding Monetary Policy Implementation
“The Federal Reserve has made the following decisions to implement the monetary policy stance announced by the Federal Open Market Committee in its statement on March 20, 2019:
  • The Board of Governors of the Federal Reserve System voted unanimously to maintain the interest rate paid on required and excess reserve balances at 2.40 percent, effective March 21, 2019.
  • As part of its policy decision, the Federal Open Market Committee voted to authorize and direct the Open Market Desk at the Federal Reserve Bank of New York, until instructed otherwise, to execute transactions in the System Open Market Account in accordance with the following domestic policy directive:
    “Effective March 21, 2019, the Federal Open Market Committee directs the Desk to undertake open market operations as necessary to maintain the federal funds rate in a target range of 2-1/4 to 2-1/2 percent, including overnight reverse repurchase operations (and reverse repurchase operations with maturities of more than one day when necessary to accommodate weekend, holiday, or similar trading conventions) at an offering rate of 2.25 percent, in amounts limited only by the value of Treasury securities held outright in the System Open Market Account that are available for such operations and by a per‑counterparty limit of $30 billion per day.
    The Committee directs the Desk to continue rolling over at auction the amount of principal payments from the Federal Reserve’s holdings of Treasury securities maturing during each calendar month that exceeds $30 billion, and to continue reinvesting in agency mortgage-backed securities the amount of principal payments from the Federal Reserve’s holdings of agency debt and agency mortgage-backed securities received during each calendar month that exceeds $20 billion. Small deviations from these amounts for operational reasons are acceptable.
    The Committee also directs the Desk to engage in dollar roll and coupon swap transactions as necessary to facilitate settlement of the Federal Reserve’s agency mortgage-backed securities transactions.”
  • In a related action, the Board of Governors of the Federal Reserve System voted unanimously to approve the establishment of the primary credit rate at the existing level of 3.00 percent.
This information will be updated as appropriate to reflect decisions of the Federal Open Market Committee or the Board of Governors regarding details of the Federal Reserve’s operational tools and approach used to implement monetary policy.
More information regarding open market operations and reinvestments may be found on the Federal Reserve Bank of New York’s website.”