Fed keeps interest rates steady, maintains wait-and-see approach
Some economists noted the rapidly spreading coronavirus has emerged as a potential threat to the health of the global economy
The Federal Reserve voted unanimously to hold interest rates steady during its first policy meeting of the year on Wednesday, reaffirming its wait-and-see approach despite growing concerns about China's widening coronavirus outbreak.
In a move that was widely expected, the Federal Open Market Committee, during its two-day meeting this week, kept the benchmark federal funds rate on hold at a range between 1.5 percent to 1.75 percent, where it has been for the past few months.
In their statement accompanying the decision, policymakers at the U.S. central bank cited low unemployment, solid job growth and inflation below their preferred 2 percent level as the reason for pressing pause on rates.
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"The Committee will continue to monitor the implications of incoming information for the economic outlook, including global developments and muted inflation pressures, as it assesses the appropriate path of the target range for the federal funds rate," the Fed statement said.
Job creation averaged 176,000 per month last year, while unemployment is currently at 3.5 percent, a half-century low. Still, the manufacturing sector has continued to slow. In December, it contracted to its lowest level since the financial crisis, spurring concerns about the strength of the U.S. economy.
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Policymakers adjusted their statement to say the current stance of monetary policy is appropriate to support "inflation returning to the committee's symmetric 2 percent objective." That modified the previous language, which said the Fed was looking to get inflation "near" the benchmark it considers healthy.
It marked the second straight month where the U.S. central vote made no changes to rates, following three modest consecutive cuts last year, part of what Chairman Jerome Powell described as a "mid-cycle adjustment."
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“The Fed’s decision today to leave rates unchanged was anticipated,” Tony Bedikian, head of global markets at Citizens Bank, said. “Fed guidance has been that future decisions will be data dependent. Despite global headwinds, U.S. policymakers continue to strike a balance between low unemployment and moderate inflation in a slow, steady growth environment.”
Still, some economists noted the rapidly spreading coronavirus — more than 130 people have died from the mysterious illness, while Chinese officials confirmed more than 6,000 cases — had emerged as an unexpected risk to the global economy. Multiple companies and countries are limiting travel to and from mainland China, evacuating citizens and scaling back operations, raising concerns about the health of the world's second-largest economy.
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"We maintain our view that the Fed will cut rates once more in 2020," Cailin Birch, global economist at The Economist Intelligence Unit, said. "For now, we maintain our view that this rate cut will come in March, as firms become increasingly concerned about the impact of coronavirus on a major growth market, China."