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Fed, Dimming Its Economic Outlook, Predicts No Rate Increases This Year

Jerome H. Powell, the Federal Reserve chairman, said interest rates will remain unchanged and provided a fairly downbeat economic assessment on Wednesday.

By Jim Tankersley, New York Times

March 20, 2019

WASHINGTON — The Federal Reserve said Wednesday that the United States economy was slowing more than it had previously thought and painted a far less rosy economic picture than the White House as it left interest rates unchanged and signaled little appetite for raising them again in the near future.

Jerome H. Powell, the Fed chairman, said the economy “is in a good place” in a news conference. But he and his colleagues said growth appeared to be slowing from last year, under the weight of the Trump administration’s trade war, economic slowdowns in Europe and China and fading stimulus from the Republican tax cuts of 2017.

The Fed now expects 2.1 percent growth this year, down from the 2.3 percent it forecast in December — and more than a percentage point less than the 3.2 percent growth the White House predicts. The outlook for 2020 is even more bleak, with the Fed now projecting growth of just 1.9 percent.

The downbeat assessment comes as the Fed sees signs of weakness in areas like consumer spending and business investment, which Mr. Powell said “suggest that growth is slowing somewhat more than expected.” Average monthly job growth, while strong, “appears to have stepped down from last year’s strong pace,” he added.

Mr. Powell tried to reassure markets by saying “economical fundamentals are still very strong,” but he acknowledged that recent developments both domestically and abroad were making it harder for the American economy to grow as quickly as it did last year.

“We see a situation where the European economy has slowed substantially,” he said, adding that China’s economy has also weakened.

Forecasts released at the end of the two-day meeting show the typical member of the Federal Open Market Committee now expects not to raise rates at all this year, an abrupt halt to what had been five consecutive quarters of rate increases to the current range of 2.25 to 2.5 percent. Most officials now expect a single rate increase in 2020 and none in 2021. In December, when forecasts were last released, Fed officials said they expected two rate increases this year and another in 2020.

Mr. Powell showed little concern about inflation — which has stayed below the Fed’s 2 percent target — rising to levels that would trigger an immediate rate increase in order to prevent a rapid escalation of prices across the economy.

Instead, Mr. Powell did not rule out the possibility — based on the current condition of the economy — that the central bank’s next move could be a rate cut. “The data are not currently sending a signal that we need to move in one direction or another,” he said.

By signaling it will not raise rates without a clear change in conditions, the Fed is effectively giving Mr. Trump what he wants from monetary policy, but with a twist. The president has publicly pushed Mr. Powellto stop raising rates. But if the Fed is correct and growth falls well below 3 percent this year, without a single rate increase, it will be difficult for Mr. Trump to pin the blame on Mr. Powell.

The 1.9 percent growth the Fed now expects in 2020 is down from a 2 percent forecast in December. But the projections include even worse possibilities: At least one committee member forecasts growth of only 1.6 percent for 2019. In December, the lowest forecast was 2 percent for the year.

White House officials see growth staying above 3 percent for the next few years, provided Mr. Trump can continue implementing his economic agenda, including another round of tax cuts, a $1 trillion infrastructure plan and additional deregulation.

Most private forecasters’ growth predictions for this year run closer to the Fed’s than the White House’s. That includes the chief executives of the Business Roundtable, who said in a quarterly survey released Wednesday that their expectations for sales, hiring and investment fell at the start of the year. They predict the economy will grow 2.5 percent in 2019.

The gap between White House and Fed forecasts has never been wider in the years since the Great Recession ended in 2009. The two outlooks have clashed in the past — during the terms of Presidents George Bush and George W. Bush — for fundamental reasons, said Diane Swonk, the chief economist at Grant Thornton.

“One is a forecast that is meant to be as accurate as possible and produce the best monetary policy outcomes,” Ms. Swonk said. “The other is a forecast that can’t escape political and ideological desires.”

The diverging forecasts underscore the differences in how the administration and the Fed judge both the risks to economic growth this year and the evidence that Mr. Trump’s tax cuts have fundamentally strengthened the economy.

Administration officials insist that the $1.5 trillion tax cut will continue to accelerate business investment and draw more and more workers into the labor force, accelerating growth. Mr. Trump promoted his economic plan in Lima, Ohio, on Wednesday, saying it would produce record job and wage growth.

“We just came out, another chart, we just came out with numbers, the economic report of the president, 3.1 percent G.D.P., the first time in 14 years,” Mr. Trump said, referring to data showing economic output rose 3.1 percent in the fourth quarter of 2018 from a year earlier. While the Fed expressed concern that Mr. Trump’s trade policies could drag down growth, the president said his tariffs on imported metals and Chinese goods were bringing jobs back to America.

“Everyone said you couldn’t do it, you couldn’t bring back manufacturing jobs,” he said. “You would need a magic wand. We are bringing them back beyond anybody’s expectations.”

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