The Federal Reserve held its key interest rate steady and signalled it plans to stay on hold in 2020 unless a worsening economy prompts a significant change in its outlook. James Glassman, senior economist at JPMorgan shared his views on the Fed's decision.
“It is very favourable for risky assets. The economy is performing well, inflation is not the issue, we don’t need the central bank to tell us that they are going to be cautious and I think that message has been taken out by the markets which is why we are up so much. This is the case for any central bank, it is not unique to the Federal Reserve. Central bank’s job is to manage the economies unless there is an inflation problem. So when inflation is quite benign, it is not surprising that the Fed has suddenly become very cautious,” he said.
“The problem is the markets have been responding quite strongly to all of this perception about how the economy is doing. I think a lot of this news is already priced into the market,” he added.
“I think the risk for central banks is it may seem good from an inflation point of view but if you keep interest rates artificially low, you can cause problems that you don’t really recognise till many years later.
“When things are doing fine, it is always prudent to try to at least neutralise the policy rates,” Glassman added.