Fed opens door to rate cut amid growing 'uncertainties'

The Federal Reserve on Wednesday opened the door to an interest rate cut soon, saying uncertainties about the economic outlook are on the rise and vowing to act to keep the economy growing.

The central bank left rates unchanged but one policymaker dissented in the vote, advocating for an immediate cut instead - something President Donald Trump has been calling for loudly.

The policy-setting Federal Open Market Committee kept the key rate in the 2.25-2.5 per cent range but said "uncertainties about this outlook have increased" and the Fed "will act as appropriate to sustain the expansion."

The closely-watched Fed statement included a marked shift in language, no longer saying the central bank will remain "patient" in assessing economic data.

 

Officials in recent weeks had acknowledged that trade frictions with China are darkening the outlook.

"In light of these uncertainties and muted inflation pressures, the Committee will closely monitor the implications of incoming information for the economic outlook and will act as appropriate to sustain the expansion, with a strong labor market and inflation near its symmetric 2 per cent objective," the FOMC statement said.

James Bullard, president of the Fed's St Louis regional branch, voted against the decision, saying he wanted to see the federal funds rate cut by 25 basis points.

Bullard last month was to first central banker to give voice to the expectations of financial markets that economic conditions would require the Fed to cut in the near future. He said earlier this month that a rate cut could be needed "soon."

The quarterly forecasts issued by the central bankers Wednesday revealed a decidedly more dovish tilt, with far fewer now expecting a rate hike this year than had been the case in March's forecast.

However, committee members were spilt on whether to keep the key rate where it is now or lower it.

But the projections did not reflect much change in the outlook for the economy: the median estimates for growth and unemployment were essentially unchanged compared to March, while the forecast for inflation was cut to 1.5 per cent from 1.8 per cent previously.

The statement said the Fed still sees a continued economic expansion and inflation at long last rising to the two percent target as the most likely outcome but now clearly recognises concerns on the horizon, pointing to growth that is only "moderate" and "soft" business investment.

Fed Chairman Jerome Powell will provide more insight into the central bank's thinking at a press conference due to begin at 1830 GMT.