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Federal Reserve Holds the Line on Interest Rates, Signals No Hikes in 2020

As expected, the Fed leaves its benchmark interest rate unchanged at between 1.5% and 1.75% in a sign that its three-and-done approach to providing a jolt to the U.S. economy remains intact - through at least 2020.

The Federal Reserve’s rate-setting policy committee opted to leave benchmark interest rates unchanged at the conclusion of its two-day meeting on Wednesday in a sign that the Fed's three-and-done approach to providing a jolt to the U.S. economy remains in place - through at least 2020.

In its final post-meeting statement of the year, the Federal Open Market Committee, in its unanimous decision, said it saw the current policy rate as "appropriate." It also signaled that it expects to leave rates alone in 2020, and potentially raise rates one time in 2021.

"The Committee judges that the current stance of monetary policy is appropriate to support sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee's symmetric 2% objective," the statement said.

"As long as incoming information about the economy remains consistent with this outlook, the current stance of monetary policy likely will remain appropriate," Fed Chairman Jerome Powell said in a post-meeting press conference.

The Fed in late October cut rates for a third time by a quarter-percentage point to a range of between 1.5% and 1.75% amid growing uncertainty that the U.S. economy could and would continue to withstand slowing growth elsewhere in the world.

It also pointed to additional uncertainties surrounding trade - specifically the ongoing back-and-forth trade spat between the U.S. and China and corresponding tariffs that both countries were implementing - as reason to give the U.S. economy a little breathing room.

The likelihood of the Fed staying on the sidelines through an election year unless absolutely necessary also helped buoy expectations that the Fed is on hold through 2020.

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"Even though they would never admit it to the public, the chances of Fed officials sanctioning a rate hike next year during a politically-charge election campaign are close to zero," Paul Ashworth, chief U.S. economist at Capital Economics, wrote in a note. "The Fed will be in no rush to hike rates again."

Powell has noted since that the economic outlook would need to weaken “materially” for the Fed to consider lowering rates further. Since that time, however, robust consumer spending, retail sales and blockbuster employment all have signaled that the U.S. economic expansion is very much intact.

As has been the case for much of the year, the Fed has at least one critic suggesting it still hasn't done enough to stimulate growth and bolster the U.S. economy's competitiveness relative to other countries where official lending rates are lower.

"The Fed should lower rates (there is almost no inflation) and loosen, making us competitive with other nations, and manufacturing will SOAR! Dollar is very relative to others," Trump said in an early-December tweet following a report on U.S. manufacturing activity that showed a fourth consecutive monthly drop in output.

In terms of inflation - how quickly producer and consumer goods and services prices are rising - Powell said the Fed is looking for inflation that is persistently above its current 2% year-over-year target.

"It's been very challenging to get inflation to be at target," in both the U.S. and abroad, he said. "But I think we're using our tools as best we can to meet that challenge."

Separately, Powell said the Fed's extensive interventions to provide liquidity to keep short-term rates stable in the wake of an unexpected surge in September are working.

"Our operations have gone well so far. Pressures in money markets over recent weeks have been subdued," Powell said."We stand ready to adjust the details of our operations as appropriate to keep the federal-funds rate in the target range."