Federal Reserve Chair Jerome Powell
The Federal Reserve left its key interest rate unchanged Wednesday but signaled that it’s prepared to start cutting rates if needed to protect the U.S. economy from trade conflicts and other threats.
The Fed kept its benchmark rate – which influences many consumer and business loans – in a range of 2.25 percent to 2.5 percent, where it’s been since December.
It issued a statement saying that because “uncertainties” have increased, it would “act as appropriate to sustain the expansion.” That language echoed a remark Chairman Jerome Powell made two weeks ago that analysts interpreted as a signal that rate cuts were on the way.
The uncertainties the Fed referred to clearly include President Donald Trump’s trade conflicts, especially with China. The effects of tariffs and counter-tariffs between the United States and China have become perhaps the leading threat to the U.S. economic expansion, which next month will become the longest on record.
In its statement, the Fed removed a reference to being “patient” about adjusting rates. That suggested that it’s now inclined to begin cutting rates for the first time in more than a decade. It remains unclear, though, when that might happen.
The Fed’s decision was approved on a 9-1 vote, with James Bullard, president of the Fed’s St. Louis regional bank, dissenting because he thought the central bank should begin cutting rates now. It marked the first dissent from a Fed decision since Powell became chairman in February last year.
A survey of the 17 Fed officials showed that nearly half now expect at least one rate cut this year, with seven projecting two cuts. When they previously issued forecasts in March, none had predicted a rate cut in 2019.
Many Fed watchers have said they think the policymakers want to first see whether a meeting that Trump and President Xi Jinping are to hold late next week at a Group of 20 nations summit in Japan produces any breakthrough in the U.S.-China trade war.Many analysts think the central bank will wait until September at the earliest to announce its first drop in its benchmark short-term rate since 2008 and might not cut again in 2019. A few Fed watchers foresee no rate cut at all this year, especially if the United States and China reach some tentative resolution to the trade war.
