The US Federal Reserve on Wednesday expressed concern about growing global and domestic economic risks and hinted that it could act soon to cut interest rates.
Following a policy meeting, where the central bank left its benchmark interest rate unchanged for now, officials outlined a marked shift in sentiment and changed their language.
The Fed dropped its pledge to be “patient” before rate moves and Chairman Jerome Powell stopped referring to weak inflation as “transient”, Reuters reports.
The bulk of policymakers slashed their rate outlook for the rest of the year by roughly half a percentage point, and Powell said it is agreed that the case for lower rates is building.
“Seven weeks ago we had a great jobs report and came out of the last meeting feeling that the economy and our policy was in a good place,” Powell said. “News about trade has been an important driver of sentiment in the interim.”
“We are quite mindful of the risks to the outlook and are prepared to move and use our tools as needed,” he said in a press conference following release of a policy statement in which the central bank said it “will act as appropriate to sustain” a nearly 10-year economic expansion.
Fresh economic projections released by the Fed show nearly half of the 17 policymakers now show a willingness to lower borrowing costs over the next six months, and seven see rates likely to warrant being lowered by a full half a percentage point, Reuters reported.
Though the baseline economic outlook remains “favorable,” Powell said, risks continue to rise, including the drag that rising trade tensions may have on US business investment and signs that economic growth is slowing overseas.
“Ultimately the question we are going to be asking ourselves is, ‘are these risks going to be continuing to weigh on the outlook?’” Powell said.
“We will act as needed, including promptly if that’s appropriate, and use our tools to sustain the expansion,” he said, adding that if the Fed does ease monetary policy by cutting rates, it may also halt a gradual slimming of its massive balance sheet.
The new economic projections showed policymakers’ views of growth and unemployment were largely unchanged from March. But they now project headline inflation to be just 1.5 percent for the year, down from the previous projection of 1.8 percent.
They also expect to miss their 2 percent inflation target next year as well, a blow for a central bank that has missed that goal for years, the report noted.
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