US Fed holds interest rates steady, but signals cuts could come

A currency dealer works in front of electronic boards showing the Korea Composite Stock Price Index. Kim Hong-Ji Reuters  File

A currency dealer works in front of electronic boards showing the Korea Composite Stock Price Index. Kim Hong-Ji Reuters File

One Fed policymaker dissented in the vote, advocating for an immediate cut, something President Donald Trump has been calling for loudly and which many economists say is necessary given the damage done by the escalating trade frictions.

"The last thing we need is a president threatening the chairman of the Fed on whether he is raising or lowering rates in tune with the president's politics", Pelosi said.

The Dollar had already been under pressure in the wake of the Fed's latest policy event which saw Powell and his team indicate they were ready to start cutting interest rates, markets are now expecting two interest rate cuts in 2019 with the first coming as early as July.

Mr Trump slapped new tariffs on China on May 5, took other steps that upended markets, and yet of late has sent hopeful signals of progress in the dispute when he meets Chinese officials next week - hard terrain for the Fed to navigate. He noted that the Fed is also focused on the nation's inflation rate, which can help boost economic growth but is below the targeted 2 percent level.

"In the weeks since our last meeting the crosscurrents have reemerged", he said, "raising concerns about the strength of the global economy". "Eventually he'll do what's right", the president said of Powell.

In light of those growing uncertainties and a lack of price pressure, the Fed said it will continue to monitor data and "act as appropriate to sustain" almost 10 years of United States economic expansion.

"Uncertainties surrounding the outlook have clearly risen since our last meeting" and officials are "mindful of ongoing cross currents, including trade developments and concerns about global growth", he told reporters.

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"Ultimately, the question we are going to be asking ourselves is, 'are these risks going to be continuing to weigh on the outlook?'" Mr Powell said.

Those actions caused Fed officials to change their tone from largely dismissing the macroeconomic fallout of Trump's trade policies to worrying that persistent new tariffs and shifting global supply chains could be emerging.

"I think the big surprise was how many folks moved into the cut camp on the Fed side".

The decision to freeze the rate was approved by a 9-1 vote. The US central bank left its benchmark rate unchanged, but its shift in sentiment was not left unnoticed by traders. But they now project headline inflation to be just 1.5 per cent for the year, down from the previous projection of 1.8 per cent.

Inflation has indeed remained well-below the Fed's preferred target range of 2 percent. "And wages have been rising".

"In light of these uncertainties and muted inflation pressures, the Committee will closely monitor the implications of incoming information for the economic outlook and will act as appropriate to sustain the expansion, with a strong labor market and inflation near its symmetric 2 percent objective", the Fed said in a statement.

The Fed signaled on Wednesday that it was moving closer to announcing a cut on the federal funds rate, which dictates the rate at which banks can borrow money.

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