Why It's Possible the Fed's Next Rate Change Is a Cut

Inflation isn't where the Fed likes it to be
By Newser Editors and Wire Services
Posted May 1, 2019 1:45 PM CDT
Fed Signals No Rate Hikes Are Likely in Coming Months
In this Feb. 27, 2019, file photo Federal Reserve Board Chair Jerome Powell gestures while speaking before the House Committee on Financial Services hearing on Capitol Hill in Washington.   (AP Photo/Pablo Martinez Monsivais, File)

The Federal Reserve left its key interest rate unchanged Wednesday and signaled that no rate hikes are likely in coming months amid signs of renewed economic health but unusually low inflation. The Fed left its benchmark rate—which influences many consumer and business loans—in a range of 2.25% to 2.5%. Its low-rate policy has helped boost stock prices and supported a steadily growing economy. A statement from the Fed spotlighted its continuing failure so far to accelerate annual inflation to at least its 2% target rate. The Fed's preferred 12-month inflation barometer is running at about 1.5%, reports the AP. In pointing to persistently low inflation, the Fed may be raising expectations that its next rate change, whenever it happens, could be a rate cut rather than a hike. The Fed cuts rates when it's trying to stimulate inflation or economic growth.

The central bank's decision to make no change in the policy rate policy—approved on a 10-0 vote—had been expected despite renewed pressure from President Donald Trump for the Fed to cut rates aggressively to help accelerate economic growth. The Fed expressed a more upbeat view of the economy, saying "economic activity rose at a solid rate." In March, the Fed had said it appeared that growth had slowed from the fourth quarter of last year. The generally brighter outlook for the economy and the stock market represents a sharp rebound from the final months of 2018, when concerns about a possible global recession and fear of further Fed rate increases had darkened the economic picture. The AP has much more on our current economic picture here.

(More Federal Reserve stories.)

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