The Federal Reserve 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.
WASHINGTON (Reuters) – The Federal Reserve 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.
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.
Continued U. S. economic growth was still “the likeliest outcome,” Powell said, but was now less certain than a month ago when the Fed said the economy was just as likely to grow faster than expected as it was to face a sharp downturn.
Combined with comments that the Fed’s balance sheet would remain larger than previously expected, the Fed’s meeting this week may mark a somewhat anticlimactic end to its years-long battle to “normalize” monetary policy after the 2007-2009 financial crisis and recession.
