Fed leaves key rate unchanged at low level
WASHINGTON — The Federal Reserve kept its key interest rate unchanged at a low level Wednesday amid an economy that looks solid but faces potential global threats, including from China's viral outbreak.
The Fed sketched a mostly bright picture of the U. S. economy in the statement it released after its latest policy meeting. Yet it also cautioned that it would “monitor” the world economy, which could be slowed by China's coronavirus — a risk that Chairman Jerome Powell mentioned at the start of a news conference. Stock and bond markets have gyrated in the past week over fears about the virus.
The central bank said it would hold short-term rates in a range of 1.5% to 1.75%, far below levels that have been typical during previous expansions. Powell and other Fed officials have indicated that they see that range as low enough to support faster growth and hiring.
Stock prices rose modestly after the Fed issued its statement at 2 p.m. Eastern time. Bond yiel ds were mostly unchanged.
T h e F e d ' s s t a t e me n t , which the 10 policymakers approved unanimously, was nearly identical to the one it issued after its December meeting, though it described consumer spending as rising at only a “moderate” rather than at a “strong” pace. That change likely reflects relatively modest spending by Americans over the winter holidays.
Last year, the Fed cut its benchmark interest rate three
times after having raised it four times in 2018. Powell and other Fed officials credit those rate cuts with revitalizing the housing market, which had stumbled early last year, and offsetting some of the drag from President Donald Trump's trade war with China.
Many economists and investors had hoped that U.S. and global growth would pick up this year, now that the U.S. and China have signed a preliminary trade deal that removed some tariff son Chinese goods. Indeed, the International Monetary Fund said last week that low interest rates and reduced trade tensions would likely buoy the global economy over the next two years and help nurture steady if modest growth.
But China's viral outbreak has injected fresh doubts into that outlook. The coronavirus has in effect shut down much of that nation and seems sure to slow the Chinese economy — the world's second-largest — which had already been decelerating. The virus has now infected more people in China than were sickened in
the country by the SARS outbreak in 2002-2003.
Major companies across the world have responded by suspending some operations in China. Starbucks said it plans to close half its stores in China, its second-largest market. British Airways has halted all flights to China, and American Airlines suspended Los Angeles flights to and from Shanghai and Beijing.
Hotels, airlines, casinos and cruise operators are among the industries that have suffered the most immediate repercussions, especially in countries close to China. Apple CEO Tim Cook said the company's suppliers in China have been forced to delay the re-opening of factories that have closed for the Chinese New Year holiday until Feb. 10.
Investors seem increasingly to believe that the Fed will feel compelled to cut rates again later this year. The chances of a cut by September's Fed meeting have risen to about 56%, according to the Chicago Mercantile Ex chang e' s FedWatch tool, up from 37% just a month ago.