The Federal Reserve reiterated a patient stance on future interest-rate changes in a robust domestic economy facing potential headwinds including slower global growth and market volatility.
“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 federal funds rate may be appropriate,” the Fed said in its semi-annual Monetary Policy Report to Congress released in Washington Friday.
Chairman Jerome Powell, who testifies to Congress next week, underscored that message in a Jan. 30 press conference by saying the Fed would be patient in deciding when and how to adjust policy in the face of a mounting set of risks, including slowing growth in China and Europe, Brexit, trade negotiations and the effects of the five-week U.S. government shutdown. The Fed last month decided to leave the benchmark interest rate unchanged in a range of 2.25% to 2.5%.
Friday’s report said inflation expectations remain stable despite a robust labor market and stronger wage gains. The U.S. economy has increased at “a solid rate” and consumer spending was strong throughout 2018, though it may have weakened at year- end, according to the report.
At the same time, central bankers flagged investor appetite for risk had deteriorated amid concerns about future growth risks and trade tensions with China.
The Fed included a special section in the report on the balance sheet, which it is allowing to shrink. Some officials have signaled of late that they may end the normalization program this year.
Friday’s report said that, despite the shrinkage, the portfolio would remain “considerably larger” than it was before the 2008 financial crisis. At the same time, officials are prepared to adjust any details in completing the normalization “in light of economic and financial developments.”
