Coverage: The Fed is slowing down on interest rate hikes

The Federal Reserve Board on Wednesday signaled its three-year-drive to tighten monetary policy may be at an end amid a suddenly cloudy outlook for the U.S. economy due to global headwinds and impasses over trade and government budget negotiations.

Howard Schneider and Jason Lange of Reuters had the news:

As it held interest rates steady, the U.S. central bank also discarded its promises of “further gradual increases” in interest rates, and said it would be “patient” before making any further moves.

Fed Chairman Jerome Powell said the case for rate increases had “weakened” in recent weeks, with neither rising inflation or financial stability considered a risk, and “cross-currents” including slowing growth overseas and the self-inflicted wound of a federal government shutdown making the U.S. outlook less certain.

“We are now facing a somewhat contradictory picture of generally strong U.S. macroeconomic performance alongside growing evidence of cross-currents. Common sense risk management suggests patiently waiting greater clarity,” Powell told reporters after the end of a two-day policy meeting.

Martin Crutsinger of the Associated Press reported that the market liked the news:

Before raising rates again, Powell said, he would need to see rising inflation. The Fed’s preferred inflation gauge has risen 1.8 percent in the past 12 months, below its 2 percent annual target.

“I would want to see a need for further rate increases, and for me a big part of that would be inflation,” the chairman said.

Pleased by the Fed’s benign outlook, investors sent the Dow Jones Industrial Average up nearly 435 points and back above the 25,000 level.

The central bank said in its statement that it’s ready to use all its tools — including an adjustment to its bond portfolio — if it decided the economy needed more support. Since late 2017, the Fed has been gradually reducing its bond portfolio, a move that has likely contributed to higher borrowing rates. But at some point, to avoid weakening the economy, it could slow that process or end it sooner than envisioned. Doing so would help keep a lid on loan rates and help support the economy.

Michael Sheetz of CNBC.com reported that Powell denied changing course due to pressure from President Donald Trump:

Federal Reserve Chairman Jerome Powell said the central bank did not take “political considerations” into account when deciding on Wednesday to take a much more patient approach with interest rates. President Donald Trump has repeatedly attacked the Fed for raising rates.

Stocks surged after the Fed decided to hold interests rates in a range between 2.25 percent and 2.5 percent and said in a statement that it will be more “patient” in assessing future rate hikes. The bank also put out a separate statement to ease concerns about its balance sheet unwind, something which Trump has specifically attacked.

“What we care about, and really the only thing we care about at the Fed, is doing our job for the American people and using our tools,” Powell said at a news conference.

“We’re always going to do what we think is the right thing, we’re never going to take political considerations into account or discuss them as part of our work. We’re human, we make mistakes, but we’re not going to make mistakes of character or integrity. I wouldn’t want the public to know that and I wouldn’t want them to see that in our actions,” Powell added.