US Fed defies Trump and holds interest rates

US Fed defies Trump and holds interest rates

US Fed defies Trump and holds interest rates

Traders took that as an indication that low inflation would not necessarily lead to a rate cut.

"The [Fed] 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", the Fed wrote in a statement released at the conclusion of their two-day policy meeting.

The Fed's emphasis on subdued inflation prompted knee-jerk buying of government debt as traders added to positioning for a rate cut.

The central bankers are widely expected to keep the benchmark lending rate where it is despite a blistering Twitter attack by President Donald Trump on the first day of the meeting.

"Our Federal Reserve has incessantly lifted interest rates, even though inflation is very low, and instituted a very big dose of quantitative tightening", Trump tweeted.

The change was initially read by many market participants as setting the stage for a rate cut later this year. The statement suggested a recent decline in inflation may be more persistent than expected, and was no longer to be blamed simply on falling energy prices.

The political pressure complicates the job of Fed Chair Jerome Powell - whom Trump appointed - because even if he is inclined to roll back some of the rate increases, doing so could undermine the central bank's credibility.

The chief concern flagged in the policy statement is the now "muted" level of inflation, which continues to fall short of the Fed's 2 percent target.

But he said: "We did see inflation running persistently below, then that's something the committee would be concerned about".

However, he said in an analysis, "A rate cut today would be the right call". It is not the first time that Trump has asked the Federal Reserve for lower interest rates, which makes the cost of borrowing cheaper and tends to encourage consumers and businesses to spend and invest.

At their last meeting, Fed policymakers signaled there would be no rate hikes for the remainder of 2019 in light of global economic and financial developments, as well as muted inflation. Early this year it halted the tightening campaign on concerns about weak data in the United States and overseas. It neared the upper end of the target range last week, prompting the change in the interest paid on excess reserves.

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