Fed chair: ‘The case for raising rates has weakened’

The Federal Reserve on Wednesday signaled that it will throttle back its plans to raise rates this year amid rising economic uncertainty, despite the underlying health of the US economy.

Central bankers unanimously agreed at their first two-day policy-setting meeting of 2019 to keep the federal funds rate, which influences the cost of mortgages, credit cards and other borrowing, at a range of 2.25% to 2.5%.

The move was in keeping with promises to be “patient” with earlier plans to hike rates twice this year, and to let data drive decision making.ButFed governors went so far as to suggest they may pause further rate hikes.

Jerome Powell, the Fed chairman, sought to assure Americans the decision not to press ahead with another rate hike was not due to concerns aboutthe US economy, which remains at something close to full employment. Instead, policymakers are concerned aboutoutside factors including a slowdown in China and Europe, ongoing trade tensions and more recently, a protracted government shutdown that may result in a “less favorable outlook.”

“The case for raising rates has weakened somewhat,” Powell told reporters at a press conference following the committee’sJanuary rate-setting meeting. “We believe we can best support the economy by being patient and evaluating the outlook before making any future adjustment to policy.”

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The Fed said in a separate statement it is prepared to use a range of tools to steer the US economy, including changing its plans to normalize its balance sheet by size and composition, “if future economic conditions were to warrant a more accommodative monetary policy than can be achieved solely by reducing the federal funds rate.”

Fed officials are still maintaining a somewhat rosy outlook for the US economy, point to “strong” job gains in recent months, continued low employment and subdued inflation.

Policy makers have made clear they plan to take a wait-and-see approach to watch as the US economy evolves against such a significant number of challenges, even changing their policy statement this month to reflect those concerns.

The central bank had penciled in two rate hikes in 2019.

Powell specifically pointed to the continued slowdown of global growth, an effect that could have “important implications” on the United States, coupled with a 35-day government shutdown as the driving factors behind the Fed’s apparent shift away from future rate hikes.

Earlier this week, the Congressional Budget Office estimated that the shutdown, which led to delayed paychecks, reduced working hours and stalled contacts, will result in a permanent loss of about $3 billion in gross domestic product over the five-week period.

The Fed chairman said he anticipates the shutdown will “leave some sort of imprint on first quarter GDP,” but said for now there wouldn’t be a permanent effect on the US economy.

“I think that was something that me and many others were worried about as there was talk of an even longer shutdown,” said Powell, who endorsed Congress pursuing policies that would avert another episode in the future.

“I know that Congress is actually looking at some of those. I think that would be a profitable thing to explore,” said Powell.

President Donald Trump has repeatedly railed against the Fed’s rate changes, breaking precedent by openly attacking Powell and expressing his hopes via Twitter that governors would keep rates steady, a move that could risk letting the economy overheat amid continued strong hiring.

Powell denounced any idea the Fed was caving to political pressureby taking a more dovish approach.

“My only motivation is to do the right thing for the economy and the American people. That’s it,” said Powell. “The situation calls for patience, I think it does. That stance of policy is appropriate. We see these uncertainties. We see a time where we have the luxury of being able to wait.”