WASHINGTON — The Federal Reserve expressed increasing concern about slowing economic growth on Wednesday as it left interest rates unchanged and showed little appetite for raising them in the near future.
Widening a chasm in economic optimism between itself and bullish forecasts from the White House, the Fed said in a post-meeting statement that “growth of economic activity has slowed from its solid rate in the fourth quarter.” It cited slowdowns in household spending and business fixed investment and said it expects economic growth of 2.1 percent for 2019, down from the 2.3 percent it forecast in December.
Forecasting data 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 a steady march of rate increases to the current range of 2.25 to 2.5 percent. The typical member now expects a single rate increase in 2020 and none in 2021.
That is a sharp decline from what officials expressed in December, the last time forecasts were released. Then, Fed officials said they expected two rate increases this year and another in 2020.
Yields on the 10-year Treasury note — a bellwether for a range of consumer borrowing rates — dropped sharply after the Fed statement was released as investors digested the potential for no further rate increases for some time. Shortly after 2:30 p.m. the yield on the 10-year was just below 2.54 percent, that was its lowest level since January 2018. Stocks, which had been negative for most of the day, rallied and regained positive territory after the announcement.
The Fed, which had raised rates for five consecutive quarters, signaled it sees no further need to raise them again in the near future. Eleven committee members said they do not expect any rate increases this year. Four said they expected one. None expected a rate cut.
In 2020, seven members still expected no additional rate increases while four expected one total increase from the current level. Three expected two increases, and three others expected three or four increases.
The Fed also revised down its expectations for headline inflation, which includes volatile commodities like oil and food, to 1.8 percent for the year. In December, the forecast was 1.9 percent.
Officials said they would end an effort to slim down the Fed’s massive holdings of government-backed securities in September, after slowing it down in May. The Fed accumulated $4.5 trillion worth of Treasury and mortgage-backed securities in an effort to stimulate the economy after the Great Recession. It has been slowly winnowing those holdings as the economy has recovered. The Fed’s decision to end its wind-down will leave more Treasury bonds on the Fed’s balance sheet than analysts had long expected, a move that is intended to give the Treasury more wiggle room to respond if the economy worsens.
Driving the shift is officials’ mounting pessimism about the health of the United States economy, which has seen slowing growth and weakened economic data so far this year, amid fading stimulus from President Trump’s signature 2017 tax cuts, headwinds from the administration’s trade war and slowdowns in key trading partners including Europe and China.
“Recent indicators,” officials wrote in their statement, “point to slower growth of household spending and business fixed investment in the first quarter.”
Fed officials expect growth to fall to 1.9 percent in 2020, down from a 2 percent forecast in December. Their forecasts now include even bleaker 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.
Fed Chairman Jerome H. Powell, speaking at a news conference after the meeting, said officials expect the economy “will grow at a solid pace.” While the Fed had expected economic growth in 2019 to be slower than last year, Mr. Powell said that data arriving since September “suggest that growth is slowing somewhat more than expected.”
Mr. Powell said consumer spending and business investment has shown signs of weakness and said average monthly job growth, while strong, “appears to have stepped down somewhat from last year’s pace.”
The White House insists growth will be much stronger: 3.2 percent this year and 3 percent next year. The gap between Fed expectations for annual growth and White House forecasts has never been wider, in the decade since the recession ended.
Kevin Hassett, the chairman of Mr. Trump’s Council of Economic Advisers, told reporters this week that he expects business investment growth to accelerate further this year as a result of a corporate income tax rate cut and other business incentives included in the 2017 law. He downplayed risks to growth. Administration officials have repeatedly said they are sticking with their forecast because their predictions for growth in 2017 and 2018 proved correct.
Mr. Powell has praised the strength of the economy but stressed, in several public appearances, that officials are aware of the threats to global and domestic growth that have roiled financial markets since the end of last year. The Fed statement repeats what has become Mr. Powell’s go-to description of the Fed’s strategy for such a situation: Patience.
“In light of global economic and financial developments and muted inflation pressures,” it said, “the Committee will be patient” in determining how to adjust interest rates in the future.
Analysts widely expected the Fed to hold rates steady and reduce growth forecasts, but the warnings in the Fed’s statement over growth could still spook investors.
Mr. Powell tried to reassure markets, saying “economical fundamentals are still strong.” But he said that the recent developments both domestically and abroad were providing a headwind to growth.
“We see a situation where the European economy has slowed substantially,” he said, adding that China’s economy has also weakened.
Many analysts had also expected officials to announce the September end of the balance sheet wind-down, which Mr. Powell had foreshadowed in a recent speech at Stanford University. That move will begin with a slowing of the reductions of the balance sheet in May. By October, the Fed will be shifting the composition of the balance sheet, moving out of agency debt and mortgage-backed securities and into primarily Treasury bonds.
Officials appeared to hasten to end of the balance sheet reduction under pressure from financial markets. Many analysts blamed stock market volatility in December and January on the Fed’s wind-down process.
when the reduction began. They said the total holdings on the balance sheet