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Federal Reserve nods to economic headwinds as it keeps rates steady

How do increased interest rates impact you?
How do increased interest rates impact you? 03:22
  • The Federal Reserve left a key short-term interest rate unchanged on Wednesday
  • The target range for the "federal funds" rate remains at 2.25 to 2.5 percent
  • Investors are fretting about slowing global growth, but the Fed says the U.S. economy remains solid 

The Federal Reserve left its benchmark short-term interest rate unchanged on Wednesday and reiterated that it will be "patient" as the central bank evaluates future rate hikes.

"The case for raising rates has weakened somewhat," Federal Reserve Chairman Jerome Powell said in a press conference to explain the decision.

The Federal Open Market Committee, the bank's rate-setting panel, issued a statement noting global economic headwinds and low inflation. "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," it said.

Dovish turn

Notably, the statement removed a long-standing reference to future rate hikes, saying only that the Fed would continue to assess incoming data while noting that inflation has been muted in recent months.

"I would want to see a need for further rate increases, and for me a big part of that would be inflation," Powell said. 

Stocks cheered the news, with the S&P 500 gaining 0.7 percent in the minutes after the minutes were released.

Economists said the Fed's latest statement points to a shift in policy after it raised rates four times last year as the U.S. economy strengthened.

"Short of announcing that a rate cut is in the cards, this is about as dovish a statement as possible," Ian Shepherdson of Pantheon Macroconomics said in a note.

Rewarding Mr. Trump?

The central bank has been under pressure to slow its pace of rate hikes in light of weakening economic growth abroad and the U.S. trade dispute with China. President Donald Trump has also repeatedly bashed Powell for pushing ahead with rate hikes.

The Fed is also assessing the impact of the partial government shutdown that ended last week but that has still shaken consumer confidence and created uncertainty for businesses and financial markets. The dispute also paused the flow of key federal economic reports, including readings on overall U.S. growth, retail sales and factory order.

The reopening of the government will restore the distribution of all economic reports. But it could be weeks before staffers fully catch up in compiling, analyzing and distributing all key data.

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