Reported today on The Seattle Times For the full article visit:
Fed is likely to reinforce a message of continued low rates
WASHINGTON (AP) - The Federal Reserve is expected to send a clear message when its latest policy meeting ends Wednesday: Interest rates will likely stay ultra-low for the foreseeable future.
Behind that message is a view that has gained support at the Fed as the U.S. economic expansion has entered a record 11th year: That contrary to long-standing thinking, a robust job market won't necessarily fuel high inflation. This view has freed the Fed's policymakers to keep their benchmark short-term interest rate low.
The unemployment rate is just 3.5%, the lowest in 50 years. And yet inflation is still below the Fed's 2 percent target level.
The Fed has cut its benchmark short-term rate three times this year to a range of just 1.5% to 1.75%. Chairman Jerome Powell has described those cuts as "insurance" intended to offset the drags from the prolonged U.S.-China trade war and a global economic slowdown.
But economic data also suggest that the cuts reflect the Fed's evolving views. The economy increasingly appears unable to handle higher rates. The Fed tightened credit four times last year. And its final rate hike, coupled with a projection that two more increases were coming this year, sent stock markets plunging. The market 's fear also reflected concerns that the Fed was selling off too much of its Treasury portfolio, which can send interest rates up.
Persistently low inflation and steady if sluggish economic growth have led many Fed officials to rethink their view of the so-called "neutral rate." This is the point at which the Fed's key rate is believed to neither accelerate economic growth nor restrain it. The neutral rate typically shouldn't change very often or very much. But the Fed's policymake
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