Federal Reserve officials announced Wednesday that they would keep their interest rate target steady, an acknowledgment of the improved economic outlook after the central bank cut rates three times this year.
The central bank’s target for short-term rates will remain at 1.5% to 1.75%, only half of what Fed officials anticipated a year ago. The difference reflects the major shift the Fed undertook in 2019, abandoning its plans for “normalizing” interest rates and instead aiming for easier money. The about-face followed harsh criticism from President Trump, who accused the central bank of undercutting the economy by tightening monetary policy.
Officials also issued projections indicating that they don’t anticipate raising rates at all next year and only once in 2021.
The maintained interest rate target “is appropriate to support sustained expansion of economic activity, strong labor market conditions,” and stable inflation, the Fed said in its decision.
“Our economic outlook remains a favorable one,” Fed Chairman Jerome Powell said at a press conference after officials’ two-day meeting ended on Wednesday.
A year ago, Powell and other Fed officials thought that higher interest rates would be necessary, as the economy improved, to prevent excess spending and thus out-of-control inflation.
As it turned out, though, the economy had much more room to grow without pushing up inflation: In the past year, unemployment has declined from 3.9% to 3.5%, the lowest in a half-century, even as inflation has fallen. Inflation stood at 1.8% last December, according to the Fed’s preferred measure, and has fallen to 1.3% in the most recent reading.
“I would want to see inflation that’s persistent and that’s significant — a significant move-up in inflation that’s also persistent, before raising rates to address inflation concerns,” Powell said.
“Employment gains have been broad-based across all racial and ethnic groups and all levels of education,” Powell said. “These developments underscore for us the importance of sustaining the expansion, so that the strong job market reaches more of those left behind.”
No officials dissented from Wednesday’s decision.
