US Fed holds, says it'll be 'patient' on future rate hikes

Mark Wilson/Getty ImagesFederal Reserve Board Chairman Jerome Powell.
  • The Federal Reserve held its key interest rate unchanged Wednesday.
  • The FOMC signaled it would be “patient” about future rate hikes. 
  • Fed Chairman Jerome Powell will hold a press conference at 2:30 p.m. ET.

Following its first policy meeting of the year, the Federal Reserve on Wednesday held interest rates steady and emphasized that it will carefully assess the state of the economy before considering future hikes.

“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,” it said in a statement.

Fed Chairman Jerome Powell is expected to speak on the decision at 2:30 p.m. ST, marking a new era for the central bank. Press conferences are scheduled to follow every policy meeting  from now on, as opposed to only occurring once every quarter and when rates were adjusted.

The 12-member Federal Open Market Committee last voted to increase its benchmark interest rate by a quarter percentage point, bringing it to a target range of between 2.25% and 2.5% in December.

Officials have since then signaled they would take a more cautious stance toward monetary policy, citing recent stock-market turbulence, ongoing trade tensions and dimmer expectations for global growth. But with the domestic economy still humming, they have penciled two more borrowing-cost increases this year.

In December, the unemployment rate was at a near two-decade low of 3.9%. Inflation has been holding below an annual pace of 2%, meanwhile, a target the central bank views as optimal for the economy.

The partial government shutdown that ended last week has muddled the outlook, however. About a fourth of cabinet-level departments were shuttered for the five weeks ending January 25, delivering a hit to economic activity and delaying data collection.

The disruption cost the economy about $3 billion that it will never get back, according to Congressional Budget Office estimates. The nonpartisan agency expects gross domestic product will expand by 2.3% this year, down from 3.1% in 2018.

“The huge gaps in the data for the fourth quarter, as a result of the shutdown, mean that no-one can be very sure what happened to growth,” said Ian Sheperdson, chief economist at Pantheon Macroeconomics.

In a separate statement Wednesday, the Fed said it planned to adjust how it manages the money it holds in the bond market.

“The Committee is prepared to adjust any of the details for completing balance sheet normalization in light of economic and financial developments,” it said, adding that an “ample supply of reserves” would be maintained.

In 2017, the central bank began reducing the $4 trillion portfolio of US Treasury debt and other assets it acquired following the financial crisis. But it could end that process sooner than expected, the Wall Street Journal reports.

“The initial quantitative easing was an extraordinary measure taken because of a crisis. The reversal of that, now underway, represents a return to normal and the end of a crisis policy,” said Brad McMillan, chief investment officer at Commonwealth Financial Network. “If the Fed interrupts that process, you have to wonder if things are maybe not as normal as everyone now believes.”

Stocks rallied following the announcement, with the major US indices climbing more than 1% each. Treasury yields fell, and the dollar jumped against a basket of peers.

This story is developing. Check back for updates.

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