On The Money: Fed holds rates steady in end to challenging year | Powell says deal on new NAFTA could settle economic jitters | CEOs’ economic outlook drops for seventh straight quarter

Happy Wednesday and welcome back to On The Money. I’m Sylvan Lane, and here’s your nightly guide to everything affecting your bills, bank account and bottom line.

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THE BIG DEAL–Fed holds steady on rates in end to challenging year: The Federal Reserve’s policymaking arm kept interest rates steady Wednesday after its final meeting of 2019, capping off a volatile and momentous year for the bank.

The Fed was widely expected to leave interest rates unchanged Wednesday after a string of strong jobs reports and solid consumer spending stifled fears of a recession that dominated the summer.

• After cutting interest rates in three consecutive meetings between July and October, Federal Reserve Chairman Jerome Powell suggested last month that the bank would hold tight unless the economy slumped or inflation spiked.
• While President Trump has kept his pressure on the Fed to slash interest rates even further, Powell told lawmakers in November that matching the “very, very low and even negative rates that we see around the world would not be appropriate for our country.”

I’ve got more on how we got here and what the Fed expects in 2020. 

“I don’t think anybody saw it coming.” 2019 marked a challenging year for Powell and the Fed:

The bank kicked off the year under fire for raising interest rates in December 2018 amid a sharp stock market downturn and slumping economic growth. 

• The Fed held rates steady for most of 2019 even as economic growth and job gains slowed from their torrid 2018 pace. But summer turmoil in the bond market, looming recessions in Europe and Asia, and trade-related economic anxiety pushed the bank to cut rates in July.
• Powell in July played down the Fed’s first cut since 2008 as a “mid-cycle adjustment,” expressing confidence in the U.S. economy. Even so, the Fed cut again in September and October, reducing interest rates to the range following Powell’s first rate hike in March 2018.

“I don’t think anybody saw it coming. The challenges that we faced this year, I think they were a surprise,” Powell said Wednesday. “Towards the end of 2018 there was still a sense the economy was growing at around 3 percent.”

What comes next: The Fed’s winter hibernation may still rile Trump as he seeks to cement a trade deal with China and ride a strong economy into the 2020 presidential election. Trump has berated Powell and the Fed for refusing to match the ultra-low and negative interest rates in countries teetering on the brink of recession.

Read more: Fed chief says deal on new NAFTA could settle economic jitters

LEADING THE DAY

House panel votes to temporarily repeal SALT deduction cap: The House Ways and Means Committee on Wednesday approved legislation to temporarily repeal a controversial provision in President Trump’s 2017 tax-cut law, taking action on a key priority for many Democratic lawmakers in states such as New York, New Jersey and California.

In a nearly party-line vote, 24-17, the committee advanced a bill that would eliminate for two years the tax law’s $10,000 cap on the state and local tax (SALT) deduction. Rep. Tom Reed (R-N.Y.) joined with most Democrats in voting for the bill, while Rep. Stephanie Murphy (D-Fla.) voted with most Republicans against it.

The bill, unveiled late Monday, would do away with the cap for 2020 and 2021. It would also raise the cap for married couples to $20,000 for 2019, addressing the fact that under current law, the cap is $10,000 both for single filers and married couples filing jointly.

The Hill’s Naomi Jagoda breaks it down here.

Survey: CEOs’ economic outlook drops for seventh straight quarter: A survey of CEOs released Wednesday found their economic outlook falling for the seventh quarter in a row.

The Business Roundtable’s quarterly survey of CEOs found a modest decline in expected growth linked to worries over trade, as well as a broader slowdown in the global economy and a contracting manufacturing sector at home.

The CEOs projected growth at 2.1 percent for 2020, significantly below the 3 percent target set by the Trump administration, but somewhat higher than other economic forecasts.

The survey results, which are bundled into an index, found a 2.5-point drop in the fourth quarter, bringing the index to 76.7, below the historical average of 82.7. The Hill’s Niv Elis walks us through the data here.

GOOD TO KNOW

• Paul Volcker, who served as Federal Reserve chairman under Presidents Carter and Reagan, criticized President Trump’s attacks on the central bank in an essay written shortly before his death.
• Lawmakers are dismissing China’s threat to retaliate against U.S. technology companies and vowing not to back down on limiting the use of Chinese telecom products from Huawei and ZTE, which they see as a threat to national security.
• The New York Times: “This Is What Racism Sounds Like in the Banking Industry”
• The Washington Post: “2019: The year the Federal Reserve admitted it was wrong”