By Howard Schneider
WASHINGTON (Reuters) - The U.S. Federal Reserve holds its last policy meeting of 2019 on Wednesday, having completed a year-long U-turn that saw it abandon a tightening cycle and lower borrowing costs three times in response to the global trade war.
The policy shift has slashed officials' forecast for the U.S. central bank's benchmark overnight lending rate over 2020 to a level half what it was when Fed Chairman Jerome Powell took the reins in February 2018.
The Fed is expected to leave its federal funds rate unchanged at a level between 1.5% and 1.75% when it ends a two-day policy meeting on Wednesday and reiterate that it will likely remain at that level through much if not all of 2020, a presidential election year.
As of March 2018, in the first set of economic projections issued under Powell, the median rate foreseen for the end of 2020 was 3.4%.
Having pulled rate expectations down steadily since then, Fed policymakers are likely to repeat and perhaps intensify the message sent in late October, when borrowing costs were last reduced, that only a "material" shock to the economy - for good or for ill - would prompt them to alter rates again.
"No change in rates, only cosmetic changes to the statement, and repetition of the message that the Fed is on hold with a high bar for making a move," Cornerstone Macro analyst Roberto Perli wrote in his outlook for this week's meeting.
The Fed is scheduled to release its latest policy statement and economic projections at 2 p.m. EST (1900 GMT). It is possible the rate decision will be unanimous, which would be a major accomplishment for Powell. The Fed was at times sharply divided in 2019, with as many as three of 10 voting officials dissenting against some of its policy decisions.
Powell is due to hold a news conference half an hour after the release of the policy statement.
His comments will cap a complicated year in which he and his colleagues have been under a steady barrage of personal insults and demands for rate cuts from President Donald Trump, but also one in which they had to assess how Trump's confrontational, tariff-heavy approach to trade had changed the economic outlook.
The Fed over the year concluded that cheaper money was required to offset the trade war, the resulting drag on business investment, and the rising risk of recession that world bond markets flagged last summer.
Policymakers also came to terms with the fact that a startlingly low U.S. unemployment rate of 3.5% can apparently coexist with tame inflation. That contradicts the common assumption that tight labor markets cause prices to rise, and made the Fed more comfortable reducing interest rates without fear of laying the groundwork for future problems.
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'HUGE ACHIEVEMENT'
Some of the storm clouds around trade may be lifting. A revised trade deal between the United States, Canada and Mexico appears headed towards final approval soon, and a looming set of tariffs on more Chinese imports is expected to at least be delayed as talks between Washington and Beijing on a "Phase One" deal continue.
That will shift the focus on Wednesday to what Fed officials foresee for the economy next year - and most notably whether they expect growth to slow or accelerate appreciably.
It will be an important signal not just for markets, but also for Trump and Democratic presidential hopefuls wondering if they will be campaigning in an economy that is growing, stumbling, or muddling along.
In recent weeks there has been little reason for the Fed to change its economic outlook from September, when officials saw the economy growing at a steady 2% next year with unemployment remaining low and inflation tame, said Ed Al-Hussainy, senior interest rate analyst at Columbia Threadneedle Investments.
Given the risks the economy faced last year, "that is a huge achievement they are already signaling," he said. "They have not learned anything new in the last six weeks, so it would be very unusual to signal a change."
For a graphic on The Fed's election year moves, click https://fingfx.thomsonreuters.com/gfx/editorcharts/USA-FED/0H001QXPQ9X0/index.html