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Economy

Fed stays in the ‘slow lane,’ leaves rates unchanged

Federal Reserve Chairman Jerome Powell

Maintaining its more patient approach, the Federal Open Market Committee left the federal funds rate unchanged Wednesday.

The economy continues on a healthy path, as the labor market remains strong and unemployment remains low, Federal Reserve Chairman Jerome Powell said at a news conference following the two-day meeting. The committee held the target range for the federal funds rate at 2.25% to 2.5%.

At their last meeting in March, FOMC members reduced the number of projected rate hikes in 2019 to zero from two. They now project, on average, that the federal funds rate will stay at 2.4% by the end of 2019 and rise to 2.6% by the end of 2020.

In a series of tweets Tuesday, President Donald Trump called on the Fed to cut the funds rate by 1 percentage point. "We have the potential to go up like a rocket if we did some lowering of rates, like one point, and some quantitative easing," he wrote.

When asked about the president's comments, Mr. Powell said it makes no difference to the committee. "We are a non-political institution and that means we don't think about short-term political considerations, we don't discuss them and we don't consider them one way or the other," he said.

In determining the timing and size of future rate adjustments, the committee said it will assess realized and expected economic conditions relative to its maximum employment objective and its 2% inflation objective. "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 target range for the federal funds rate may be appropriate to support these outcomes," the committee said.

The committee is comfortable with its currently policy stance, Mr. Powell said. "We don't see a strong case for moving in either direction," he added.

Luke Bartholomew, an investment strategist at Aberdeen Standard Investments, said the Fed is "sticking firmly in the slow lane," which is fine for now. "But if inflation stays as it is or worsens then there will come a point when the Fed will have to justify why they aren't cutting rates," Mr. Bartholomew added.

"Some policymakers have flagged core inflation of 1.5% as a crucial level (that) might justify easing policy, and we are already pretty close to these levels," he said.