The Federal Reserve held interest rates steady but shifted towards a more dovish stance and pointed to possible interest rate cuts in the future, citing rising 「uncertainties」 about the economic outlook.
At the end of a two-day meeting marked by concerns about slowing growth and rising trade tensions, the Fed said it would 「act as appropriate to sustain the expansion」 and would 「closely monitor the implications of incoming information for the economic outlook」.
This marked a change compared with previous language in which the Fed said it would simply be 「patient」 in determining changes to interest rate policy. The Fed also downgraded its description of the health of the US economy, saying activity was rising at a 「moderate rate」 — a less rosy picture than the 「solid rate」 of expansion it saw in May — and noted that inflation continued to run below its 2 per cent target.
But even as the Fed set the stage for possible monetary stimulus, economic projections released by the US central bank along with its statement suggested that interest rate cuts could take time to happen — and may not occur before next year.
The median interest rate forecast of Fed officials showed no change for the rest of 2019, but a 25 basis point reduction next year, compared with their previous projection of a 25 basis point increase in 2020.
Fed chair Jay Powell faced one dissent in the decision to keep rates on hold, with James Bullard, president of the St Louis Fed, saying he would have preferred to cut rates on Wednesday by 25 basis points.
US government bond prices rallied on the expectation that the Fed will ease monetary policy later this year, sending the 10-year US Treasury yield dipping back to near the 2 per cent mark — a level it has not gone under in two years. The dollar was also lower against every other major currency.
The US stock market, which came under pressure last month when resurgent trade tensions sparked concerns over economic growth, also cheered the more dovish signals. The S&P 500 added about 0.2 per cent in the wake of the Fed decision.
Despite the gathering clouds around the US outlook, economic data was still mixed and not uniformly deteriorating, according to the Fed.