The Federal Reserve (Fed) decided to hold interest rates steady Wednesday, June 19, saying that information it has received since May indicates the labor market remains strong and economic activity is rising at a moderate rate. But the central bank signaled a rate cut is on the way.
Fed’s Federal Open Market Committee (FOMC) voted 9-1 to keep the target range for the federal funds rate at 2.25-2.5 percent, unchanged from December 2018.
“Job gains have been solid, on average, in recent months, and the unemployment rate has remained low,” FOMC said in a statement Wednesday, adding that overall inflation and inflation for items other than food and energy are running below 2 percent on a 12-month basis.
FOMC said it will now maintain the key rates to help foster maximum employment and price stability, which is consistent with its statutory mandate.
Though the committee continues to view sustained expansion of economic activity, strong labor market conditions, and inflation near its 2 percent objective, it said uncertainties about this outlook have increased, and it will act as appropriate to sustain the expansion and maintain inflation objective.
The statement may imply that Fed is inclined to one rate cut in the near future.
In a news conference following the statement, Fed Chairman Jerome Powell said many policymakers at FOMC “now see the case for somewhat more accommodative policy has strengthened.”
“Overall, our policy discussion focused on the appropriate response to the uncertain environment. Many participants believe that some cut to the fed funds rate would be appropriate in the scenario they see as most likely,” Powell said.
According to CNBC, markets are betting the Fed will begin a rate cut as soon as July, the first time in more than a decade.
The Fed opens the door to a rate cut as President Donald Trump frequently criticizes the central bank for treating him unfairly in comparison with Obama administration. The president has claimed the Fed, under Powell, has raised interest rates seven times in 2017 and 2018 from near-zero levels.
In a recent interview with ABC News, President Trump said the U.S. economy and its stock market could be much better if Powell had not enacted rate increases and quantitative tightening.
“If he did nothing, or perhaps even loosened, we would be in my opinion, just an opinion, 10,000 points higher than already a very high number,” Trump said, referring to the Dow Jones Industrial Average.
The world’s largest economy has seen solid growth since President Trump won White House, with the latest data showing its real GDP grew 3.1 percent in the first quarter of 2019, up from 2.2 percent of the fourth quarter of 2018.
With a current strong economy, some see President Trump’s comments against Powell as an implication that the central bank at least should not hike interest rates to hinder Trump’s pro-economic policies from working.