US Fed leaves interest rates unchanged

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The U.S. Federal Reserve on Wednesday left interest rates unchanged as expected and pledged to be patient about future rate hikes, sparking a stock market rally and pushing down the value of the U.S. dollar.

In support of the goals to foster maximum employment and price stability, the Federal Open Market Committee (FOMC) decided to maintain the target range for the federal funds rate at 2.25 percent to 2.5 percent, the central bank said in a statement after concluding a two-day policy meeting.

The committee continues to view sustained expansion of economic activity, strong labor market conditions, and inflation near its 2 percent objective as the most likely outcomes, the Fed said.

In contrast to the wording of "some further gradual increases" in interest rates in FOMC's December statement, this time it pledged a "wait-and-see approach" regarding future policy changes.

"In light of global economic and financial developments and muted inflation pressures, the Committee will be patient as it determines what future adjustments to the target range for the federal funds rate may be appropriate to support these outcomes," it said.

The Fed in December raised short-term interest rates by a quarter of a percentage point, but signaled a slower pace of rate hikes in 2019 as the U.S. economy was expected to cool down.

The policy-making committee has seen "some cross-currents" and "conflicting signals" about the generally positive economic outlook, including slower global growth, Brexit, ongoing trade negotiations and the effects from the 35-day partial government shutdown, Fed Chairman Jerome Powell said in a press conference Wednesday afternoon.

Financial conditions tightened considerably in late 2018, and some surveys of business and consumer sentiment have moved lower, "giving reason for caution," the chairman said, adding that "the case for raising rates has weakened somewhat."

Following the Fed's announcement, the Dow Jones Industrial Average jumped 434.90 points, or 1.77 percent, to 25,014.86, the first close above 25,000 since early December. The S&P 500 was up 41.05 points, or 1.55 percent, and the Nasdaq Composite Index gained 154.79 points, or 2.20 percent.

Regarding the widely watched balance sheet normalization, the committee said in a separate statement that it continues to view changes in the target range for the federal funds rate as its primary means of adjusting the stance of monetary policy, and is "prepared to adjust any of the details for completing balance sheet normalization in light of economic and financial developments."

"We will continue to use our administered rates to control the policy rate, with an ample supply of reserves so that active management of reserves is not required," Powell said, indicating the balance sheet will remain sizable.

He said the committee is now "evaluating the appropriate timing" for the end of balance sheet runoff and will be finalizing these plans at coming meetings, noting that it will try to avoid "unnecessary market disruption."

The Fed began gradually shrinking its mortgage-backed securities and treasuries portfolio in October 2017 by allowing securities to mature without reinvesting the proceeds. It has trimmed its balance sheet from 4.5 trillion dollars at its peak time to the current 4.1 trillion dollars.

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