Fed Keeps Rates on Hold as GDP Growth Remains Sturdy

U.S. Review

Fed Keeps Rates on Hold as GDP Growth Remains Sturdy

• Real GDP grew 2.1% on an annualized basis in Q4, in part due to a boost from net exports. Year-to-year, real GDP is up 2.3%.
• The Fed left the target range for the federal funds rate unchanged, but slightly lifted the interest rate paid on excess reserves by 5 bps.
• Durable goods orders jumped 2.4% in December thanks to a surge in defense orders. Excluding defense, orders fell 2.5%.
• New home sales slipped 0.4% in December, but ended the year up 10.3% compared to 2018 thanks to lower mortgage rates.
• Personal income grew 0.2% during December, while personal spending advanced 0.3%.

Global Review

Central Banks on Hold; Mexico’s Economy Struggling

• This week, both the Bank of England and Chilean Central Bank opted to keep policy rates unchanged. Political developments have weighed on both economies, with Brexit complications creating mixed sentiment towards the UK, while social unrest is hurting economic activity in Chile. As of now, we expect both central banks to stay on hold, but acknowledge the dovish language from each set of policymakers.
• Mexico’s economy has slowed notably over the last year, with the economy contracting again in Q4, indicating a full-year contraction for 2019. Growth prospects for 2020 remain dim as political uncertainty weighs on the country’s outlook.

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