Key Merkel ally set to test Trump on Europe
Fed keeps rates unchanged as global economy slows
The Federal Reserve on Wednesday held interest rates steady for the second consecutive month as the central bank seeks clarity on the future of the global economy.
The Federal Open Market Committee (FOMC), the Fed's policymaking arm, maintained the federal funds rate at 2.25 to 2.5 percent and signaled that the bank is unlikely to hike at all in 2019.
Federal Reserve Chairman Jerome Powell told reporters Wednesday that while the bank has a "positive" outlook for the U.S. economy, persistently low inflation and slowness in the global economy warrant patience with further rate adjustments.
"Patient means that we see no need to rush to judgement," Powell said. "It may be some time before the outlook for jobs and inflation calls for adjustments to policy."
In projections released by the Fed on Wednesday, 11 FOMC members projected the bank to hold off on rate hikes for the rest of 2019, four predicted one more hike this year, and two members predicted two more increases.
It's unclear when and if the Fed will raise rates again this year after hiking them four times in 2018 and three times in 2017, but Powell played down how predictive Wednesday's projections could be.
"They're not a committee decision. They're not a committee plan," Powell said.
The Fed has gradually raised rates toward a historically neutral range since the end of 2015 in a bid to prevent the economy from overheating and inflation from spiking.
Amid those concerns, inflation has remained just below the Fed's 2 percent target for several years despite near-record low unemployment and sharp uptick in U.S. economic growth. Top Fed officials have said in recent months that interest rates could now be close to a neutral level, one that neither stimulates nor slows the economy.
"Inflation is not clearly meeting our target, so that's one of the reasons we're being patient," Powell said.
The potential pause is welcome news to President Trump, who has bashed the Fed and Powell for raising interest rates throughout his term in the White House. But the reasons behind the Fed's decision could preview trouble for the U.S. economy and Trump's reelection bid.
Powell said the U.S. economy "is in a good place," citing low unemployment, higher wage growth, strong consumer confidence levels and supportive financial conditions.
Even so, the Fed downgraded its projections of U.S. gross domestic product (GDP) growth in 2019 to 2.1 percent from its December estimate of 2.3 percent.
"We continue to expect the American economy to grow at a solid pace in 2019 although slower than the very strong pace of 2018.," Powell said.
Powell said severe economic slowdowns in Europe and China could hinder the U.S. economy, also singling out Brexit and trade negotiations as "risks to the outlook."
"The global economy started to gradually slow and now we see a situation where the European economy has slowed substantially," Powell said. "It is an integrated global economy and financial markets are integrated as well"
The Fed's projections are in line with many public and private sector forecasts, but are more pessimistic than White House estimations released within the past two weeks.
Trump's 2020 budget proposal projected 3 percent growth through 2024, and the top White House economist said Tuesday that tax cuts and regulatory rollbacks enacted by the president would power the economy for years to come.
"We actually cut taxes to encourage people to build new factories. And we had new factories last year," said Kevin Hassett, chairman of the White House Council of Economic Advisers..
"We're going to get more new factories this year, but we're also going to get the output from the factories we built last year as they turn them on."
Powell said Wednesday that the 2017 tax cuts and spending increases "supported demand in a significant way last year, but that "it's hard to identify" supply-side boosts "with any precision."
Updated at 3:55 p.m.