Fed Leaves Interest Rates Unchanged

WASHINGTON — Federal Reserve officials left interest rates unchanged at their first meeting of 2020 on Wednesday, upholding their patient stance after an active, and often tumultuous, 2019.

The Fed continued to express confidence about the economy’s health in its postmeeting statement, saying that “the labor market remains strong.” Economic activity has been rising “at a moderate rate,” it added. “Job gains have been solid.”

Officials offered few hints at what could shake them from their wait-and-see approach, updating only a handful of words from their December statement. The pace of household spending was downgraded from “strong” to “moderate,” and the committee judged that its current policy setting would help to support inflation “returning to” its 2 percent goal. Previously, it had stated that inflation was “near” that target.

The Fed cut borrowing costs three times last year as trade tensions and slowing global growth weighed on the economic outlook. The move marked a full pivot from 2018, when the Fed was steadily raising rates to fend off higher inflation as unemployment sank steadily lower.

But Chair Jerome H. Powell has signaled that the central bank does not plan to cut interest rates as long as the growth outlook shapes up as expected, and does not intend to raise them unless inflation moves up and stay there. The federal funds rate is currently set in a 1.5 to 1.75 percent range. The decision to keep rates unchanged was unanimous.

At a news conference on Wednesday, Mr. Powell said the labor market remains strong and that sustained consumer spending is expected to continue. While “growth in household spending moderated toward the end of last year” Mr. Powell noted that the “the fundamentals supporting” consumption remain “solid.”

Still, Mr. Powell said that some economic weak spots persist, largely as a result of sluggish global growth and trade tensions. While President Trump recently signed a trade deal with China, the impact of that long-running fight continues to show up in the data.

“Business investment and exports remain weak,” Mr. Powell said, as well as a falloff in manufacturing.

Mr. Powell also noted that “uncertainties about the outlook remain,” pointing to the new coronavirus as a potential economic threat.

“It’s a very serious issue,” Mr. Powell said. “There will clearly be implications, at least in the near-term, for Chinese output,” adding that “we just have to see what the effect is globally.”

Mr. Powell said the central bank is “very carefully monitoring the situation.”

The Fed is trying to stay nimble as growth chugs along but price increases remain subdued.

Mr. Powell said the Fed is “not comfortable with inflation running persistently below our 2 percent symmetric objective” and said that “in theory inflation should be moving up” given the United States economy is in its 11th year of an expansion and unemployment is very low. Mr. Powell noted that the 2 percent goal is “not a ceiling,” suggesting that price gains above that level would not be problematic for the Fed.

The comments, along with the statement, suggest the Fed is in no rush to make any major rate or policy adjustments barring a significant change in the economic trajectory.

That is unlikely to sit well with Mr. Trump, who has been pushing the central bank to slash rates further. In a tweet on Tuesday, Mr. Trump said “the Fed should get smart & lower the Rate,” arguing that comparatively high rates in the United States are putting the country at a disadvantage.

The central bank does not answer to the White House, and officials regularly reiterate that they set a policy with an eye toward their twin goals: maximum employment and stable inflation.

Yet officials are facing a conflicting backdrop when it comes to achieving those targets.

Hopes of a global growth turnaround had been climbing, helped along by an initial trade deal with China. Mr. Trump also signed a revised North American Free Trade Agreement on Wednesday, bringing more than two years of fraught negotiations to a close.

But those positive signs could be dampened by the outbreak of the new coronavirus, which is forcing quarantines in China and causing nervousness around the world.

And while employers are still hiring and unemployment remains at a half-century low, inflation continues to fall short of the Fed’s 2 percent target, which it has not hit sustainably since the central bank formally adopted the goal in 2012.

Tepid inflation leaves the central bank with less headroom to cut rates — which include price increases — in a downturn. And if consumers begin to expect slower increases, that outlook could become self-fulfilling, dragging price gains down further. Hardly anyone — including Fed officials themselves — expects it to eclipse 2 percent this year.

The central bank did nudge up the interest rates it pays on excess reserves — essentially bank deposits that are stashed at the Fed. It is a technical adjustment meant to keep the Fed funds rate trading within its target range.

It also reaffirmed that it will continue purchasing Treasury bills “at least into” the second quarter of 2020. It has been purchasing short-term Treasury securities at a pace of $60 billion per month in a bid to keep the financial system flush with cash and to prevent money market ruptures, like one that reared its head in the repurchase market — or repo market — in September.

Fed officials, in a note released Wednesday, said the ultimate goal is to “maintain over time ample reserve balances at or above the level that prevailed in early September 2019.”

The Fed said that it will continue to conduct operations in the repo market, “through April 2020 to ensure that the supply of reserves remains ample” even in stressful periods.

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