A television screen on the trading floor of the New York Stock Exchange shows the rate decision of the Federal Reserve on Wednesday. The Federal Reserve is leaving its key interest rate unchanged.
The stock market and the White House didn't get an interest rate cut on Wednesday, but the Federal Reserve was accommodative in its statement.
The central bank's Federal Open Market Committee (FOMC) kept the target for the federal funds rate at a range of 2.25 percent to 2.50 percent, citing an economy growing at a moderate pace and a strong labor market. But the FOMC also expressed that there are some "uncertainties" on the horizon.
"Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. In support of these goals, the Committee decided to maintain the target range for the federal funds rate at 2-1/4 to 2-1/2 percent," the statement said.
"The Committee continues to view sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee's symmetric 2 percent objective as the most likely outcomes, but uncertainties about this outlook have increased."
Fed Chairman Jerome Powell has faced criticism from US President Donald Trump, who has accused him of rising rates too much and too fast — four times in 2018. Some news reports said Trump has explored having Powell demoted or fired.
"I think the law is clear that I have a four-year term, and I fully intend to serve it," Powell told reporters Wednesday when asked about the situation at a news conference after the statement's release.
While the Fed always has been considered independent of the political arena and financial markets, it did offer something of a salve to investors and the White House in its statement:
"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 percent objective."
"At the end of the day, what they (the Fed) want to do is give a nod to the market. Expectations had gotten so dovish that they need to give a nod to that, but at the same time not make any commitment and be forced to cut rates later on if conditions perhaps changed," said Kristina Hooper, chief global market strategist at Invesco in New York.
"The Powell Put is in full effect. This is how rallies become bubbles," Jim Collins, founding partner of theportfolioguru.com, told China Daily.
An actual put option is a contract giving the owner the right to sell a security at a specified price within a certain time frame, serving as an insurance policy in the event of a market decline. By the Fed hinting that a rate cut could be coming, stocks could move higher in anticipation.
The three major US stock indices posted modest gains in Wednesday trading.
The Dow Jones Industrial Average rose 38 points to 26,504; the S&P 500 advanced 9 points to 2,926, while the Nasdaq Composite increased 33 points to 7,987.
"The Fed did a favor for the market near term taking all the uncertainty about rates away. A quarter-point cut is now fully priced in for July," Kamal Khan, chief US editor at Investing.com, told China Daily.
"But in the end it looked like investors wanted more dovish language, especially from Powell, who Khan said "pointed to 'an ounce of prevention', but maybe the market wanted something heftier".
"We think the Fed delivered. It did no harm. It walked right up to a cut without doing it today. It'll likely be coming in July absent some big trade news or other news," said John Augustine, chief investment officer at Huntington Bank in Columbus, Ohio.
The Fed keeps a close watch on inflation, and rate-cut champions root for the key economic measure to stay below 2 percent.
"On a 12-month basis, overall inflation and inflation for items other than food and energy are running below 2 percent," the FOMC statement said. "Market-based measures of inflation compensation have declined; survey-based measures of longer-term inflation expectations are little changed."
The FOMC also mentioned that one of the tools in its rate-assessment program is "readings on financial and international developments".
A major international development would be any progress on stalled US-China trade talks, which are expected to get a jump-start when Trump and Chinese President Xi Jinping meet at the G20 Leaders Summit in Osaka, Japan, late next week.
"Seven weeks ago we had a great jobs report and came out of the last meeting feeling that the economy and our policy was in a good place," Powell said. "News about trade has been an important driver of sentiment in the interim."
Fresh economic projections released by the Fed show nearly half of the 17 policymakers show a willingness to lower borrowing costs over the next six months, and seven see rates likely to warrant being lowered by a full half-percentage point, or 50 basis points, near what bond investors have anticipated.
"I think the big surprise was how many folks moved into the cut camp on the Fed side. You had seven members that are now looking for two cuts in 2019," said Jacob Oubina, senior US economist at RBC Capital Markets.
"Maybe this goes to the point that the China trade situation is such a critical pivot for whether the Fed cuts or not."
Reuters contributed to this story.