After three successive interest rate cuts meant to head off a global economic slowdown and trade worries, the Federal Reserve hit the pause button at its last meeting of the year and signaled it was likely to remain on the sidelines all next year.

The decision to keep the Fed’s benchmark rate at between 1.5% and 1.75% was approved unanimously by all 10 voting members.

In their new rate projections, 13 of 17 policymakers expect the Fed’s key interest rate to remain unchanged through all of next year. None see further cuts, while four predicted a single quarter-point rate hike in 2020.

While Wednesday’s decision was widely expected and marked a quiet end to a busy year, the central bank is looking at a potential minefield during the 2020 presidential election year.

Although the U.S. economy remains defiantly buoyant today, particularly the solid job market, there are signs that next year could be different. Among them: the sagging European economy with Britain’s uncertain exit from the EU, President Trump’s festering trade war with China and others, and a concerning surge in borrowing by major U.S. companies.

Also, the current good times, which began with recovery from the Great Recession in 2009, are long in the tooth, in the view of some economists. For most, the only questions about a slowdown is when it will come and how severe it will be.

And the Fed could be in a difficult position to deal with problems next year. For one thing, it has set the bar very high for raising the present, historically low level of interest rates.

“I would want to see inflation that is persistent, and that is significant,” Fed Chairman Jerome H. Powell said at a news conference following the two-day monetary policy meeting. Inflation has been muted, although it is projected to rise to 1.9% next year, close to the Fed’s 2% target.

Any action next year also will occur in a supercharged political atmosphere. Trump has already attacked the Fed again and again for not pumping up the economy, the health of which is critical to his reelection prospects.

Trump has been haranguing Powell all year long, pressuring him to lower interest rates and keep the good times rolling for next year’s election.

The political heat will only increase as U.S. economic growth is expected to slow — and could even plunge — if Trump escalates his trade war with China.

Trump is threatening to slap new 15% tariffs on about $160 billion worth of cellphones, laptops, toys and other imported goods from China on Sunday, although many analysts expect the duties will be suspended as the two sides continue to negotiate on a partial trade deal.

Prior to its latest meeting, the Fed made three straight quarter-point rate cuts to cushion the economy against slumping manufacturing and trade. Powell said that he believed those actions have now provided enough insurance against those risks, and in recent weeks recession worries have receded.

“I think both the economy and monetary policy right now are in a good place,” he said.

In their updated outlook, Fed officials on average projected economic growth to slow to 2% from 2.2% this year. The economy expanded by almost 3% in 2018, fueled by the Republican tax cuts.

Growth this year, however, has been uneven. Business investments and trade have slumped, even as job growth has exceeded expectations and continues to prop up consumer spending, the main driver of the economy. The jobless rate is now down to a half-century low of 3.5%, and the Fed doesn’t see it moving up much from there for the foreseeable future.

Source: LA Times by Don Lee