The Federal Reserve said it will be “patient” on any future interest-rate moves and signaled flexibility on the path for reducing its balance sheet, in a substantial pivot away from its bias just this past month toward higher borrowing costs.
The Federal Open Market Committee “will be patient as it determines what future adjustments to the target range for the federal funds rate may be appropriate to support” a strong labor market and inflation near 2 percent, the central bank said in a statement Wednesday following a two-day meeting in Washington, D.C.
In a separate special statement on Wednesday, the Fed said it’s “prepared to adjust any of the details for completing balance sheet normalization in light of economic and financial developments.”
The central bank also said it would be ready to alter the balance sheet’s size and composition if the economy warrants a looser monetary policy than the federal funds could achieve on its own.
U.S. stocks rallied after the announcement, Treasury yields fell and the dollar sank.
The statements mark a broader shift toward risk management and follow months of criticism from President Donald Trump, who hectored the central bank for raising rates too much.
The FOMC dropped previous language calling for “some further gradual increases” in interest rates and opened the door for the next move to be either up or down, as it cited “global economic and financial developments and muted inflation pressures.”
Policymakers also omitted a line saying risks to the outlook are “roughly balanced.”
The decision comes after Chairman Jerome Powell’s remarks earlier in January assuring that officials will be patient in raising rates helped to calm investors, who had perceived he was overly dismissive of sharp stock drops and volatility.
ARTICLE CONTINUES BELOW ADVERTISEMENT
“The U.S. economy is in a good place and we will continue to use our monetary policy tools to help keep it there,” Powell said at the start of his news conference.
The central bank expects continued solid growth this year, though at a slower pace than in 2018, he said. Amid the crosscurrents of a strong U.S. economy and some uncertainties abroad, a “common-sense” approach means the Fed will patiently await “greater clarity” and rely on economic data to guide policy, Powell said.
On the balance sheet, Powell said the normalization process will be completed “sooner and with a larger balance sheet” than previous estimates.
The 10-0 vote on the decision held the target range for the federal funds rate at 2.25 percent to 2.5 percent.