WASHINGTON: The Federal Reserve left interest rates unchanged on Wednesday but took a major step towards lowering them in coming months in a policy statement that tempered inflation concerns with other risks to the economy and dropped a longstanding reference to possible further hikes in borrowing costs.
The US central bank’s latest policy statement gave no hint that a rate cut was imminent, and indeed said the policy-setting Federal Open Market Committee “does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2%,” the Fed’s inflation target.
“Inflation has eased over the past year, but remains elevated,” the Fed said in the statement after a two-day meeting, restating that officials “remain highly attentive to inflation risks.”
The language will be a blow to investors who have been expecting rate cuts to start as early as March.
But the Fed also nodded to concerns about the employment side of its mission as well, and opened the door to lowering the policy rate if inflation, as expected, continues drifting lower in coming months.
The risks to meeting both the employment and inflation goals “are moving into better balance,” the Fed said, ending roughly two years in which the central bank’s bias has been to moving rates higher and the risks seen as tilted towards those posed by escalating prices.
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