The Federal Reserve kept its foot off the gas and left the door open for further rate hikes on Wednesday but warned that downside risks of economic growth had increased “somewhat” due to trade tensions and slowing global activity.
At the conclusion of its two-day meeting, the Federal Open Market Committee (FOMC) unanimously decided to hold the benchmark federal funds rate steady at 2.25 to 2.50 percent. The Fed had raised the rate another quarter percent twice in 2019, a total of 1.5 percent, after years of sticking to historically low rates.
In a statement, the FOMC noted that while the economic activity and labor market remained strong, “growth of household spending has picked up,” while business investment “has been soft.” In addition, the statement said, “downside risks have increased,” citing trade tensions and slowing global growth.
The Fed’s decision will likely please President Donald Trump, who has been publicly pressuring the Fed to keep interest rates low. Trump said the Fed should “get our interest rates down to ZERO, or less,” in a tweet last week.
However, this decision is likely due in part to the fact that the Fed’s inflation target of 2 percent remains elusive. Meanwhile, the fact that the statement acknowledged a likely “need for additional cutbacks” suggests that the Fed is open to the possibility of more rate hikes further down the road.
While the Fed’s passiveness now could give the economy some time to remain stable, the future of the economy is far from certain. The Fed’s hands off approach for now could very well be a sign that the Fed is waiting to see how the U.S.’s ongoing trade war with China and other countries pan out before opting to make any more significant monetary policy decisions.
