WASHINGTON (AFP) – The Federal Reserve (Fed) sent a strong signal the US economy is slowing, indicating Wednesday it will not raise the benchmark lending rate again this year amid a drop in spending and broader global uncertainty.
It was an aggressive downshift that came as a shock to many economists, since as recently as September the Fed expected to raise rates three times in 2019.
”It may be some time before the outlook for jobs and inflation calls clearly for a change in policy,” Federal Reserve Chairman Jerome Powell told reporters following the announcement.
And he said global growth which had been a tailwind to the US economy, had begun to slow – notably in Europe and China where tariffs and Brexit are weighing.
The Fed’s surprising change of direction follows the four rate increases last year, frequently in the face of vociferous antagonism from President Donald Trump, who called the central bank ”crazy” for tightening monetary policy as the economy grew.
The change could prompt speculation that the most recent hike in December, implemented despite a Wall Street sell-off and signs of weakening economic activity, was aimed at demonstrating the central bank’s independence from Trump.
The shift in the closely-watched forecast released meant nine of the 17 members of the policy-setting Federal Open Market Committee lowered their projection for this year.
But the forecast Wednesday also confirms the next move is still expected to be an increase in the key policy interest rate, though that is not now expected to come until sometime in 2020.
The explanation can be found in the stark change in language in the statement from FOMC, which voted unanimously to keep the key rate unchanged at 2.25 to 2.5 percent.
In its second meeting of the year, the committee said ”growth of economic activity has slowed from its solid rate in the fourth quarter,” as household and business spending is expected to drop off and annual inflation has declined.
In contrast, in January, the FOMC said economic activity was growing at a ”strong rate” and household spending continued to ”grow strongly.”