- The Federal Reserve is expected to leave borrowing costs unchanged Wednesday.
- Officials have signaled flexibility on monetary policy going forward.
- The Federal Open Market Committee statement will be released at 2 p.m. ET, and Fed Chairman Jerome Powell will hold a press conference at 2:30 p.m. ET.
Following its first policy meeting of the year, the Federal Reserve is expected to hold interest rates steady Wednesday and to emphasize that it will carefully assess the state of the economy before considering future hikes.
It will mark the start of a new era for the central bank, with press conferences now scheduled to be held after every policy meeting. In the past, they tended to only occur once every quarter and after those in which rates were adjusted.
But there is little expectation for borrowing costs to increase. Officials have signaled they would take a more cautious stance toward monetary policy, citing recent stock-market turbulence and dimmer expectations for global growth. In December, the Fed lowered its 2019 forecast from three hikes to two.
“There’s broad consensus the Fed is unlikely to hike rates at this meeting, considering global weakness and signs of deterioration in pockets of the U.S. economy,” said John Lynch, chief investment strategist at LPL Financial. “Overall, though, we think the domestic economy is strong enough to digest continued gradual rate hikes.”
The labor market is humming, with unemployment at a near two-decade low of 3.9% in December. Inflation has been holding below an annual pace of 2%, meanwhile, a target the central bank views as optimal for the economy.
A recent partial government shutdown has muddled the outlook, however. About a fourth of cabinet-level departments were shuttered for the five weeks ending January 25, delivering a hit to economic activity and delaying data collection.
“We would not be surprised if the first paragraph of the statement, describing the state of the economy, dials down December’s assertion that growth has been ‘strong,'” said Ian Sheperdson, chief economist at Pantheon Macroeconomics. “The huge gaps in the data for the fourth quarter, as a result of the shutdown, mean that no-one can be very sure what happened to growth.”
The disruption cost the economy about $3 billion that it will never get back, according to Congressional Budget Office estimates. The nonpartisan agency expects gross domestic product will expand by 2.3% this year, down from 3.1% in 2018.
The 12-member Federal Open Market Committee last voted to increase its benchmark interest rate by a quarter percentage point, bringing it to a target range of between 2.25% and 2.5% in December.
Officials were also expected to discuss how much money the Fed would hold in the bond market. In 2017, the central bank began reducing the $4 trillion portfolio of US Treasury debt and other assets it acquired following the financial crisis. But it could end that process sooner than expected, the Wall Street Journal reports.
The FOMC statement will be released at 2 p.m. ET. Fed Chairman Jerome Powell will hold a press conference at 2:30 p.m.