The Fed will keep its wait-and-see approach amid improvements to slowing economic growth.
Mandel Ngan/AFP via Getty Images
Topline: In a widely expected move on Wednesday, the Federal Reserve left interest rates unchanged in the 1.5% to 1.75% range, while also indicating that changes to monetary policy would stay on hold for the time being—even as some Wall Street investors grow increasingly worried about the fast-spreading coronavirus from China.
- In a unanimous decision, Fed board members voted to leave the benchmark interest rate steady for the time being, continuing the wait-and-see approach that was initialized last October when the Fed paused its monetary easing cycle.
- “Some of the uncertainties around trade have diminished recently, and there are some signs that slowing global economic growth is improving,” Fed Chair Jerome Powell said in a press conference after the meeting.
- Powell confirmed that the central bank would remain on the sidelines as it keeps an eye on economic developments and assesses the appropriate path of monetary policy moving forward.
- In its policy statement, however, the Fed made no explicit mention of the coronavirus and its economic impact, though Powell did note that “uncertainties about the outlook remain, including those around the coronavirus.”
- He called the outbreak a “very serious issue” that is likely to disrupt economic activity in China and probably globally: “Of course, we are very carefully monitoring the situation.”
- “It’s too early to say what the effects will be,” Powell said. “Clearly there will be implications at least in the near-term, but we’ll have to see what the macroeconomic effects will be on the rest of the world.”
Crucial quote: “We believe the current stance is appropriate to sustain moderate economic growth, a strong labor market and inflation returning to our 2% goal,” Powell said in his press conference.
Chief critic: “The message for the economic outlook was very similar to what was said in December,” says Nicholas Sargen, economic consultant for Fort Washington Investment Advisors. “If I had to summarize it: Steady as she goes!”
Key background: The Fed raised interest rates four times in 2018, then cut rates three times starting in mid-2019 before indicating that it would pause the monetary easing cycle ahead of implementing additional rate cuts. The central bank said it continues to see a “strong” labor market in the U.S., with overall economic growth “rising at a moderate rate,” despite business investments and exports remaining weak. Consumer spending, however, was downgraded from “strong” to “moderate” in the Fed’s policy statement, while household spending continued to see modest growth. Powell indicated that the Fed would continue repo purchases until reserves reach $1.5 trillion, despite some investors viewing this as a measure of quantitative easing. Powell also added that the phase one trade deal with China and the progress on USMCA is “without question” a positive for the U.S. economy. He described the global economic outlook as one of “cautious optimism.”
Crucial statistics: Stocks jumped on the news, with the S&P 500 hitting a new intraday high right after the Fed announced its decision.