The US Federal Reserve has kept interest rates on hold but suggested it could cut them in the future, in its first decision since the Trump administration ratcheted up tariffs on China.
Fed policymakers dropped language about being “patient” over future rate hikes from their statement announcing the decision, saying the central bank would “act as appropriate to sustain the expansion”.
The outlook for the Fed’s main interest rate – the targeted overnight lending rate – was predicted to stay between 2.25 and 2.50 per cent until the end of the year.
Out of the 17 Fed policymakers, seven signalled they thought cutting rates by 0.5 percentage points by the end of 2019 would be appropriate.
The US central bank’s forecast showed it was likely to cut rates by 0.25 percentage points next year. It had previously suggested it would raise them by the same amount in 2020.
Fed chairman Jerome Powell said the decision had been taken in light of “ongoing cross-currents including trade developments and concerns about global growth”.
The central bank’s policymakers said while they still predicted sustained economic growth and ongoing labour market strength, “uncertainties about this outlook have increased”.
They cut their prediction for headline inflation this year to 1.5 per cent, after projecting price growth of 1.8 per cent three months ago.
Suggestions of rate cuts and lower inflation send the yields on 10-year US Treasuries – government bonds – falling towards the two per cent level last seen in 2017.
The dollar dropped against the euro following the news. It had fallen 0.4 per cent against the single currency to buy €0.889 by 8pm UK time.
The Fed’s decision came a day after global markets were boosted by European Central Bank (ECB) president Mario Draghi’s remarks that he may apply fresh stimulus in the euro area.
US President Donald Trump criticised the statement, saying the fall in the euro it provoked made it “unfairly easier for them to compete against the USA”.
Trump has repeatedly called on the Fed to cut rates, which he has said would make the economy “rocket”.