Fed Leaves Rates Unchanged, Scraps 'Patient' Approach

The change in tone follows attacks on the Fed by Trump for not doing more to bolster the economy and Tuesday's report by Bloomberg News that the president asked White House lawyers earlier this year to explore his options for demoting Powell from the chairmanship.

That risks casting a political shadow over whatever policy decision the Fed makes, though Powell and his colleagues say they're focusing only on the economic goals Congress gave them.

Officials noted that "growth of household spending appears to have picked up from earlier in the year" and that indicators of business fixed investment "have been soft." They repeated that the labor market "remains strong."

Investors have been betting the Fed will reduce rates at its next meeting in late July, though a majority of economists surveyed earlier this month don't expect a move until December. Yields on 10-year Treasuries have fallen to the lowest since 2017. The hope of fresh stimulus has sent U.S. stocks to near a record.

Recent U.S. economic data have been mixed. Consumer spending held up in May but job gains were disappointing, and some gauges of business sentiment have cooled on uncertainty around the outlook for trade. The Fed remains bedevilled by inflation continuing to undershoot the central bank's 2% target despite unemployment being at a 49-year low.

Central bankers are likely hoping for greater clarity over Trump's trade war with China. Stocks jumped on Tuesday after the president said he would meet Chinese leader Xi Jinping at next week's Group of 20 summit in Japan.

The Fed, which raised interest rates four times last year and as recently as December projected further hikes in 2019, isn't alone in changing tack. European Central Bank President Mario Draghi on Tuesday paved the way for a rate cut, and central banks in Australia, India and Russia have lowered borrowing costs this month.

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• The median projection for 2019 GDP growth was unchanged at 2.1% and revised up by a tenth of a point to 2% in 2020. The 2021 estimate was held at 1.8%.
• The median unemployment rate forecasts 2019-21 were all lowered by a tenth of a point. Officials see 3.6% this year rising to 3.7% next year and 3.8% in 2021.
• Officials see the jobless rate most consistent with full employment in the long run at 4.2%, versus 4.3% in March.
• Officials cut estimates for their preferred inflation gauge. The personal consumption expenditures price index is expected to increase just 1.5% in 2019, down from a 1.8% projection in March. By 2020, the main and core gauges are both projected to rise 1.9%, below the target.

–With assistance from Chris Middleton

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