By Greg Robb, MarketWatch
Bloomberg News/Landov Enlarge Image
Federal Reserve Chairman Jerome Powell on Wednesday said the case for higher interest rates “has weakened” because of muted inflation and somewhat slower U.S. growth, stressing the central bank will be “patient” before determining its next move.
The Fed also indicated it’s willing to adjust the size of its balance-sheet runoff, and perhaps end it altogether, amid Wall Street worries that it contributed to the huge stock-market selloff in December.
In a 10-0 vote, senior Fed officials left a key U.S. interest rate unchanged after a two-day meeting in Washington.
The current level of interest rates is “appropriate for the state of the economy,” Powell said in a press conference afterward.
The central bank also backed away from a pledge for “further gradual increases” in interest rates — the first time since 2015 that the Fed’s statement has not included such language.
In other words, the Fed left open the possibility that the next move could be to lower interest rates. As recently as last month, the Fed said it still expected the next policy move would be to raise them.
U.S. stocks extended large gains after the Fed meeting. The Dow Jones Industrial Average /zigman2/quotes/210598065/realtime DJIA -1.39% closed up 434 points and topped 25,000 for the first time since mid-December.
Powell denied that the central bank was aiming to keep financial markets from falling too much, a so-called “Powell Put.”
The Fed has done a quick about-face after raising interest rates in December, when the U.S. stock market tanked and worries about a U.S., or even global, recession intensified. Since then, more evidence of a weaker global economy has emerged, especially in China and Europe, Powell noted.
Yet the sudden shift in the Fed’s new outlook, Powell insisted, doesn’t mean the central bank expects the economy to stumble.
Although growth appears to have slowed, he said the economy is still stable and expanding. The Fed characterized the economy as expanding at a “solid rate” in January, compared a “strong” rate in December.