Federal Reserve officials offered no hints about its future plans Wednesday as it announced a widely-expected decision to hold off on raising its interest rate target after the first monetary policy meeting during the Trump administration.
Investors anticipated that the Fed would not change its short-term rate target of 0.5 percent-0.75 percent, after raising it in December. Instead, they were looking forward to clues in the Fed’s statement about possible changes the rest of the year.
But the statement offered very little to work with. It continued to describe economic growth as “moderate.” The only major change was a note that business and consumer sentiment have risen as Trump has taken office, although the officials gave no suggestion about how that could influence growth.
“This statement reads like the Fed could have drafted it back in December, which indicates that they are not yet reading any major macro-economic impacts into the policies announced by the administration so far,” said Tara Sinclair, a senior fellow at the Indeed Hiring Lab.
Bond market prices Wednesday afternoon suggested that investors don’t expect the Fed to raise rates at its next meeting in March, but then to act in June.
There were no dissents at Wednesday’s meeting, which included several new voting members.
In December, officials at the central bank expected that they would raise rates three more times in 2017. But those plans were highly dependent on what actions President Trump and the Repubican-led Congress might take on taxes and spending.
Big tax cuts, especially in combination with new infrastructure spending, could prompt the Fed to raise rates faster to try to slow spending and prevent inflation from rising out of control.
Fed officials also had to gauge, during their two-day meeting, just how strong the economy is. With the unemployment rate at 4.7 percent in December and unemployment benefit claims running at the lowest levels in decades, there was some evidence that the Fed may have to tighten money faster.
More recently, some Fed officials have begun discussing the possibility of not only raising rates, but also beginning to let the Fed’s $4.5 trillion balance sheet shrink by ending reinvestments in bonds.
