The Federal Reserve left interest rates unchanged Wednesday and vowed to take a patient approach to rate hikes in the wake of slowing global growth and subdued inflation. The Federal Open Market Committee kept the overnight funds rate in a range of 2.25% to 2.5%.
In a dovish move, the Federal Reserve opted for a more cautioned tone in its monetary policy statement. It ditched its preference to continue with “gradual” rate hikes, saying it can hold off on monetary policy tightening following a slowdown in global growth and muted inflation pressures.
“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 Fed said. On the balance sheet, the Fed said it “is prepared to adjust any of the details for completing balance sheet normalization in light of economic and financial developments.”
This comes just weeks after Fed Chairman Jerome Powell hinted that the central bank may be open to using all tools available to overcome any potential deterioration in economic conditions, including adjusting its balance sheet wind-down operation, which peaked at roughly $4.5 trillion in Jan. 2015, but has now narrowed to about $4 trillion.
The Fed believes the current path of policy action is “appropriate,” Powell said in the press conference that followed the decision. The Fed chief stressed the Fed Funds rate was the primary monetary policy tool, but said the central bank would be open to adjusting its balance sheet normalization if a more robust solution was needed.
In the weeks leading up to the decision, Federal Reserve members said they were partial to a wait-and-see approach before hiking rates in a bid to calm investor fears that the FOMC may overshoot on policy.
Those fears were underscored in wake of the central bank’s previous meeting in December when the Fed hiked rates and served up a less dovish tone than many had expected, prompting sharp selling in the markets.
The Fed’s decision to keep rates unchanged was made easier by the impact of the longest government shutdown in history. It not only hit economic growth, but also limited the amount of economic data available to assess the health of the underlying economy.
The five-week shutdown wiped off about $11 billion from the U.S. economy, the Congressional Budget Office said on Monday. Most of the impact will be in the first quarter, which will see its annual growth rate reduced by about 0.4%.
The data that was at the Fed‘s disposal did little to inspire calls for another rate hike.
⇑⇓ Start Trading ⇓⇑ – CFD Service. 80.6% lose money
Consumer confidence, although still at historically high levels, dropped to an 18-month low in January. The deterioration in the underlying housing market continued at pace as pending and existing home sales fell to multi-year lows last month.