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TORONTO — The Federal Open Market Committee left interest rates unchanged Wednesday, and made some dovish changes to their policy statement that left it more in line with recent messaging from a number of committee members, RBC Economics reported.
Most notably, reference to “some further gradual” rate hikes was dropped. Instead, the Fed will be “patient” in determining whether further policy adjustments are warranted, the release noted.
That shift was motivated by global economic and financial market developments and muted inflation pressures, said Josh Nye, RBC senior economist.
Chairman Jerome Powell elaborated on some of those cross currents in his press conference, noting further signs of slowing global growth, particularly in Europe and China, persistent uncertainty over trade policy, some sustained tightening in financial conditions despite recent improvement, and a government shutdown that will impact first-quarter growth.
He also indicated that inflation trends and financial stability risks don’t point to a pressing need for tighter monetary policy. Powell noted the case for raising rates has weakened. The overall message was even more dovish than markets expected, sending Treasury yields lower, particularly at the front end, and boosting equities.
“While cross currents suggest risk of a less favorable outlook, the Fed still sees sustained economic expansion, strong labor markets, and near-2% inflation as the most likely outcomes,” said Nye.
“We agree with that assessment, and our central expectation is that the Fed will raise rates twice this year with the next hike coming in June,” he added. “But with the committee no longer holding an explicit tightening bias, the bar for a near-term move has been raised.
“Unless some of the risks clouding the economic outlook are resolved in short order, or inflation starts to pick up more significantly, we might not see any moves from the Fed until later this year,” said Nye.
SOURCE: RBC Economics press release