WASHINGTON — The Federal Reserve
left its key interest rate unchanged Wednesday but signaled that
it's prepared to start cutting rates if needed to protect the U.S.
economy from trade conflicts and other threats.
The Fed kept its benchmark rate — which influences many consumer and
business loans — in a range of 2.25% to 2.5%, where it's been since
It issued a statement saying that because "uncertainties" have
increased, it would "act as appropriate to sustain the expansion."
That language echoed a remark Chairman Jerome Powell made two weeks
ago that analysts interpreted as a signal that rate cuts were on the
The uncertainties the Fed referred to clearly include President
Donald Trump's trade conflicts, especially with China. The effects
of tariffs and counter-tariffs between the United States and China
have become perhaps the leading threat to the U.S. economic
expansion, which next month will become the longest on record.
In its statement, the Fed removed a reference to being "patient"
about adjusting rates. That suggested that it's now inclined to
begin cutting rates for the first time in more than a decade. It
remains unclear when that might happen.
The Fed's decision was approved on a 9-1 vote, with James Bullard,
president of the Fed's St. Louis regional bank, dissenting because
he thought the central bank should begin cutting rates now. It
marked the first dissent from a Fed decision since Powell became
chairman in February last year.
On Wall Street, stocks rose and bond yields dipped after the central
bank issued its statement at 2 p.m. Eastern time, likely reflecting
expectations of lower rates ahead. The yield on the 10-year Treasury
note fell to 2.03%, its lowest point since Trump was elected, from
2.06% late Tuesday.
A survey of the 17 Fed officials showed that nearly half now expect
at least one rate cut this year, with seven projecting two cuts.
When they previously issued forecasts in March, none had predicted a
rate cut in 2019.
Many Fed watchers have said they think the policymakers want to
first see whether a meeting that Trump and President Xi Jinping are
to hold late next week at a Group of 20 nations summit in Japan
produces any breakthrough in the U.S.-China trade war.
That meeting carries opportunity as well as risks, at a Group of 20
nations summit in Japan, said Jay Bryson, global economist at Wells
It's possible the meeting could lead to the removal of tariffs that
would help growth and nullify the need for rate cuts. But it's also
possible that the leaders of the world's two largest economies could
deepen their feud and that new import taxes could be launched.
"The clearest and present danger is the G-20 meeting next week,"
Bryson said. "It could go either way."
Many analysts think the central bank will wait until September at
the earliest to announce its first drop in its benchmark short-term
rate since 2008 and might not cut again in 2019. A few Fed watchers
foresee no rate cut at all this year, especially if the United
States and China reach some tentative resolution to the trade war.
Complicating the timing of possible rate cuts is an escalation of
attacks on the Fed by Trump as he gears up for his 2020 re-election
campaign. Trump's public criticism, a highly unusual action for a
president, has raised concern that he is undermining the Fed's
independence as a central bank. The president has asserted that
under Powell's leadership, the Fed hurt the economy by tightening
credit too much last year and by failing to lower rates since then.
This week, Trump was asked about a news report that the White House
in February had explored whether the president had the authority to
demote Powell as chairman while leaving him on the Fed's board.
"Let's see what he does," Trump said of Powell. "They're going to be
making an announcement very soon. So we'll see what happens."
The president has previously explored firing Powell. But under the
law, a Fed board member, like Powell, can be fired only for cause.
At his news conference, Powell was asked what he would do if Trump
said he intended to demote him.
"I think the law is clear that I have a four-year term, and I fully
intend" to fulfill it," the chairman said, reiterating what he has
The Fed is meeting at a time when the U.S.-China trade war has
magnified concern and uncertainty for businesses and investors about
whether and how much the economy will suffer. The U.S. manufacturing
sector, in particular, is weakening. This week, the Federal Reserve
Bank of New York reported that an index it compiles of manufacturing
in New York state plunged this month into negative territory — to
its lowest point since 2016. The index reflects manufacturing
conditions in the state.
In some encouraging news, Trump tweeted Tuesday that he had spoken
by phone with Xi and that the two leaders plan "an extended meeting"
at a Group of 20 nations summit in Japan late next week. Trump also
said that before his meeting with Xi, negotiators for the two sides
will resume talks.
Also Tuesday, Mario Draghi, head of the European Central Bank, said
the ECB was ready to provide further stimulus, including rate cuts,
if the eurozone economy doesn't strengthen soon.
Draghi's comments sent the value of the euro tumbling against the
dollar, prompting an angry tweet from Trump accusing the ECB leader
of acting to weaken the euro to gain a competitive trade advantage
against the United States.