Fed Leaves Rates Unchanged, Hints at Rate Cuts in the Future

Fed Chairman Jerome Powell will announce the central bank's decision on Wednesday

The Federal Reserve held its benchmark interest rate steady but delivered a strong signal that the central bank may be poised to cut in the coming months.

In a statement Wednesday, the central bank said its policy-makers voted to hold its target rate for overnight loans between banks in a range between 2.25 percent and 2.5 percent. It also said it will continue to pay banks interest on excess reserves at a rate of 2.35 percent.

In a move that represented a change from the policy adopted just a few months ago, the Fed dropped language indicating that it could be patient when assessing whether to adjust its rate target. That language emerged in January after the Fed abandoned the view that more “further gradual increases” in interest rates were likely to be warranted in the coming months.

But the Fed’s cautious approach has recently been seen as creating a risk that the Fed could react too slowly to signs of falling inflation and economic sluggishness.

The Fed said that it continues to view sustained expansion of economic activity, strong labor market conditions, and inflation near its 2 percent target as the most likely outcomes but added that “uncertainties about this outlook have increased.”

“In light of these uncertainties and muted inflation pressures, the Committee will closely monitor the implications of incoming information for the economic outlook and will act as appropriate to sustain the expansion,” the Fed said.

That echoed remarks made earlier by Fed chairman Jerome Powell that were widely interpreted as indicating the Fed would cut rates if economic sluggishness continued.

Despite the hints at rate cuts to come, the Fed still has a positive view about the economy. It described the labor market as “strong” and said economic activity is rising at a “moderate” rate, a slight downgrade from the “solid” rate it saw at the last Fed meeting. It noted that growth of household spending appears to have picked up from earlier in the year but said this was offset by indicators that business fixed investment has slowed.


The median forecast of Fed policy-makers for economic growth this year is 2.1 percent, unchanged since March. The forecast for 2019 notched down to 1.9 percent from 2.0 percent in March. The forecast for inflation this year fell to 1.5 percent from 1.8 percent in March, with the forecast for “core” inflation fell to 1.9 percent from 2.0 percent.

Some Fed officials changed their view of where rates are headed this year. Eight said they expected cuts this year, with one forecasting a single cut and seven forecasting two cuts. The median forecast for the target at year’s end, however, remained unchanged at 2.4 percent. The Fed’s median forecast for next year, by contrast, pencils in two easings to a funds-rate target of 2.1 percent. That’s a half a percentage point lower than forecast at the Fed’s March meeting. The long-range rate forecast moved down to 2.5 percent from 2.8 percent in March.

James Bullard, president of the St. Louis Fed, was the sole dissenting member of the Federal Open Markets Committee. He preferred to cut the target at this meeting.


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