The Federal Reserve on Wednesday announced it would hold interest rates steady, another clear signal it intends to take a cautious approach in an uncertain economic environment.
Fed governors unanimously agreed at their first two-day policy-setting meeting of 2019 to keep the federal funds rates, which influences the cost of mortgages, credit cards and other borrowing, at a range of 2.25% to 2.5%.
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.”
Since late last year, central bankers have grown increasingly wary of a slowdown amid signed of a weakening global economy, ongoing trade tensions between the United States and China, and more recently, the protracted government shutdown.
“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 Federal Open Market Committee’s two-page statement read.
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 shutdown, the longest in US history, was not directly referenced in the Fed’s statement.
Fed officials are still maintaining a somewhat rosy outlook for the US economy pointing to “strong” job gains in recent months and continued low unemployment.
“The labor market has continued to strengthen,” the statement said, adding “economic activity has been rising at a solid rate.”
Although the US central bank has emphasized that decisions on future rate hikes would depend on incoming data on the economy, that effort was hindered this month by the lack of critical data from the Commerce Department due the shutdown. The central bank uses a number of metrics to assess the health of the US economy both from the private and public sector.
For now, the central bank has penciled in two rate hikes in 2019.
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.
In recent months, top Fed officials including Chairman Jerome Powell have made clear they plan to take a wait-and-see approach before weighing any additional rate hikes.
“We’re actually in a good place,” Powell said earlier this month at the Economic Club of Washington. “We have the ability to be patient and watch patiently and carefully as we watch the economy evolve.”
That sentiment has been echoed in recent weeks by other policymakers, including Powell’s top deputy, Richard Clarida, who told the Fox Business Network: “We’re going to take this meeting by meeting.” He noted that policy makers would be taking a holistic view of incoming data, particularly on global growth.
