As Fed officials intimated and economists predicted, the Federal Open Markets Committee unanimously voted Wednesday to maintain interest rates between 2.25 percent and 2.5 percent. Its statement assured constant rates for some time.
After four rate raises in 2018, the Fed reiterated a new policy of “patience” as it awaits clarity on how slowing global growth and market volatility affect domestic outlook. The central bank altered its policy statement to eliminate outlook for gradual increases.
“The Committee continues to view sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee's symmetric 2 percent objective as the most likely outcomes,” the statement read. “In light of global economic and financial developments and muted inflation pressures, the Committee will be patient as it determines what future adjustments to the target range for the federal funds rate may be appropriate to support these outcomes.”
The FOMC also approved a primary credit rate at 3 percent.
Why It’s Important
Rate changes reflect the Fed’s economic analysis and forecast. Generally, it raises rates in response to high economic growth. Increases curb inflation, preserve the value of the dollar, stabilize prices, and depress borrowing, consumer spending, business profits and stock market performance.
Changes in trade policy and adjustments in federal spending — current variables in the U.S. economic equation — can stunt GDP growth and warrant less aggressive rates. The Fed’s “patience” seems to reflect near-term economic uncertainty, although officials said they continue to see sustained expansion.
“In determining the timing and size of future adjustments to the target range for the federal funds rate, the Committee will assess realized and expected economic conditions relative to its maximum employment objective and its symmetric 2 percent inflation objective,” the statement read. “This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments.
RSM chief economist Joe Brusuelas anticipates two rate hikes in the back half of 2019.
BankRate put forth a similar forecast.
"A slowing global economy and tame inflation allow them to be patient for now, but unless the U.S. economy stumbles, the Fed will need to resume raising rates in the months ahead," analyst Greg McBride said in a report.
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