The Federal Reserve announced Wednesday it would keep interest rates unchanged as a resilient labor market holds strong and inflation remains well below the central bank’s ideal level.
The Federal Open Markets Committee (FOMC), the Fed’s rate-setting panel, said in a Wednesday statement that it will maintain the baseline interest rate for overnight bank loans at 1.5 to 1.75 percent.
The widely expected decision to keep rates steady comes after Fed officials closed out a turbulent 2019 with confidence in the U.S. economy’s outlook for 2020.
Fed Chairman Jerome Powell told reporters following the FOMC’s December meeting that the bank would likely not move rates without a significant economic shift. The Fed held rates steady in December after cuts at each of the prior three meetings.
A surge of hiring, record holiday sales and a late stock market rally at the end of 2019 helped temper fears of a recession that dominated the summer. While analysts have forecast a global economic slowdown in 2020, the U.S. economy is expected to expand at a stable pace and keep unemployment close to 50-year lows.
“Job gains have been solid, on average, in recent months, and the unemployment rate has remained low,” the FOMC said in its Wednesday statement. “Although household spending has been rising at a moderate pace, business fixed investment and exports remain weak.”
President Trump’s trade agreements with China, Mexico and Canada are also likely to temper some of the uncertainty that stifled business investment and global commerce. But Trump’s brewing trade battle with Europe is among several political and economic threats facing the Fed in 2020.
Powell told reporters Wednesday that he and his colleagues believe the current interest level “is well positioned to serve the American people by supporting continued economic growth, a strong job market, and the return of inflation to our symmetric 2 percent goal.”
Powell added that while the “fundamentals supporting household spending are solid,” the Fed will be keeping a close eye on several potential headwinds, naming the lethal Chinese coronavirus.
“There is likely to be some disruption to activity in China and possibly globally based on the spread of the virus today and the travel restrictions and business closures that have already been imposed,” Powell told reporters Wednesday.
Powell added that while “it’s too early to say” how much damage the illness will unleash, “there will clearly be implications, at least in the near term, for Chinese output, and I guess for some of their closest neighbors, and we’ll just have to see what the effect is globally.”
The Fed’s decision to keep rates steady will likely frustrate Trump, who has spent most of his presidency berating the bank to slash borrowing costs. The president is depending on a strong economy to ease his path to reelection, and wants the independent central bank to flood the U.S. with cheap money to boost growth.
Trump tweeted Tuesday that the Fed should zero-out interest rates and pump the economy with crisis-level stimulus to match the borrowing costs of countries teetering on recession.
“The Fed should get smart & lower the Rate to make our interest competitive with other Countries which pay much lower even though we are, by far, the high standard,” Trump tweeted.
Fed watchers and financial markets had expected the Fed to leave rates alone in January after the FOMC hinted at a prolonged pause.
But Powell is also under scrutiny over the Fed’s efforts to stabilize interbank lending markets that jammed up late last year, and how it could affect interest rates broadly.
The Fed has been steadily purchasing billions of dollars worth of Treasury bonds from banks to pump liquidity back into markets used to settle transactions between banks. Some Fed observers contend that this has the practical effect of easing borrowing costs below the central bank’s target range, though Powell has defended the purchases as a separate effort.
“Our intention … for these adjustments is just to raise the level of reserves and to allow us to conduct monetary policy in an efficient and effective manner. And that is our sole intention, Powell said.
Updated at 4:08 p.m.