The Federal Reserve held interest rates steady on Wednesday following the record-long government shutdown — and amid growing concern about the future strength of the U.S. economy.
The bank’s Federal Open Markets Committee (FOMC) announced at the end of its first meeting of the year that it would keep the federal funds rate at a range of 2.25 to 2.5 percent.
The Fed was widely expected to hold off on a hike after raising rates in December, the fourth increase in 2018 and ninth since 2015. Senior Fed officials, including Chairman Jerome Powell, had hinted at a pause in rate hikes in speeches and public interviews throughout January.
{mosads}Powell said Wednesday that the Fed is “patiently awaiting greater clarity” in a “somewhat contradictory picture” as the economy’s continued strength faces threats from waning global growth and geopolitical factors.
The chairman cited the potential turmoil caused by economic slowness in Europe and China, a messy divorce for the United Kingdom and European Union and interminable trade battles.
“The cross currents I mentioned suggest the risk of a less favorable outlook,” Powell said.
The Fed is attempting to navigate murky economic waters after the five-week partial government shutdown, the longest shutdown in U.S. history that only ended on Friday, and amid spreading fears of an impending global slowdown.
“In light of global economic and financial developments and muted inflation pressures, the Committee will be patient as it determines what future adjustments to the target range for the federal funds rate may be appropriate to support these outcomes,” the FOMC said in a statement Wednesday.
The FOMC dropped from its statement a long-running reference to “further gradual” rate hikes, but said it still expects a “sustained expansion of economic activity, strong labor market conditions” and inflation near its 2 percent target.
Wall Street rallied on the Fed’s dovish turn after months of fretting over future rate hikes. The Dow Jones Industrial Average soared more than 400 points after the Fed announced its decision at 2 p.m.
Policymakers are struggling to assess the full harm of the 35-day shutdown while thousands of workers and communities affected by the budgetary stalemate attempt to rebuild. Consumer sentiment also fell during the shutdown, depriving the U.S. of crucial economic fuel.
Powell said that the U.S. should make up what it lost in gross domestic product (GDP) growth if Congress and the White House can avoid another shutdown. If not, the chairman said that the economy could take a deeper, long-term hit due to “a loss of confidence in our ability to make policy in the United States.”
While the U.S. is expected to rebound from the shutdown, there is rising fear among economists of broader global economic retreat.
The International Monetary Fund last week slashed its projections for global growth, and economists expect the U.S. to fall below 3 percent annualized GDP growth in 2019. Some major tech companies and manufacturers are reporting lackluster earnings driven by a plunge in global demand, particularly from China.
Fed officials have touted the strength of the U.S. economy but say they’re approaching the cloudy economic picture with patience. With inflation staying below the Fed’s 2 percent target despite a tight U.S. labor market, FOMC members have signaled a desire to hold off on rate hikes for now.
“The case for raising rates has weakened somewhat,” Powell said Wednesday. “We think that our policy stance is appropriate right now.”
A Fed pause is likely welcome news President Trump, who had berated Powell for months to stop hiking rates. While some critics of the Fed accused the bank of folding under political pressure, Powell fiercely defended its independence.
“What we care about, and really the only thing we care about at the Fed, is doing our job for the American people and using our tools appropriately,” Powell said.
“We’re human, we make mistakes, but we’re not going to make mistakes of character or integrity.”
Updated at 4:23 p.m.