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Federal Reserve Downgrades U.S. Growth And Cuts Rate Hikes

Federal Reserve

The Federal Reserve downgraded its estimate for U.S. economic growth to 2.1 percent, from 2.3 percent in December

No more rate hikes this year, says the Fed, but that’s because economic growth is hitting a slowdown and while Trump has been highly critical of the Fed for pushing rate hikes over the past year, they’re still not doing him any favors is suggesting that the economy isn’t on a tear, as the president claims.

On Wednesday, the Federal Reserve downgraded its estimate for U.S. economic growth to 2.1 percent, from 2.3 percent in December. And most significantly, that 2.1-percent forecast comes a day after the White House projected GDP expansion at or above 3 percent for the next five years.

The White House, with 2020 in mind, is plugging 2017 corporate tax cuts as a sure windfall for business investment.

So once again, the Fed is going to butt heads with the White House, even though they’ve laid off rate hikes.

From the Fed’s perspective, while the labor market “remains strong”, “growth of economic activity has slowed from its solid rate in the fourth quarter”.

And where it comes to business investment, the Fed contradicts the White House entirely, saying that “recent indicators point to slower growth of household spending and business fixed investment in the first quarter”.

As far as rate hikes are concerned, the Fed said there would be no more for this year, but expects one in 2020.

Further to ruffle the White House feathers, the Fed noted that the unemployment rate has stopped falling and inflation will be lower.

While the White House is still banking on corporate tax breaks, administration officials don’t seem to be factoring in the trade war and the government shutdown earlier this year. Based on the Fed’s statement, it would see that the boost from corporate tax breaks has run its course. Related: De Beers To Expand World’s Most Profitable Diamond Mine

The Fed’s aren’t sounding any alarm bells, though they have expressed concern about a slowdown. They’re calling it a “modest slowdown”, and still like the “strong” underlying fundamentals.

Fed chair Jerome Powell noted that his key aim is to “sustain the economic expansion with a strong job market and stable prices for the benefit of the American people”.

“The U.S. economy is in a good place, and we will continue to use our monetary policy tools to help keep it there.”

In other words, avoid a partisan read on the Fed’s notes. While the White House may be overshooting in its economic bragging, things are still pretty good, fundamentally.

The Fed’s statement caused a sharp plunge in the dollar, which is an expected result with a dovish stance. However, by Thursday morning the dollar regained its footing, largely thanks to lower overall appetite for market risk.

The Fed also noted that it would slow the monthly reduction of Treasury holdings as of May from $30 billion to only $15 billion. Yields heading lower as a result of the news, with the 10-year Treasury down 1.3 basis points.

It’s also been a stellar morning for Wall Street, with the S&P 500 gaining 0.7 percent, the Dow gaining 0.6 percent, and the Nasdaq Composite up 0.9 percent on the dovish news after a year of rate hikes.

By Tom Kool for Safehaven.com

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