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Fed Reiterates Powell's Pledge To "Act As Appropriate" To Sustain Expansion

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In a move largely telegraphed by Federal Reserve Chairman Jerome Powell, the Fed has declared that it will "act as appropriate" to sustain the U.S. economic expansion amid increasing uncertainties about the outlook for the economy.

The Fed announced its widely expected decision to leave interest rates unchanged on Wednesday, with the focus largely on the wording of the accompanying statement.

The statement said the Fed continues to see a sustained economic expansion, a strong labor market, and inflation near its 2 percent target as the most likely outcomes but noted uncertainties about this outlook have increased.

"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," the Fed said.

The line in the statement mirrors the pledge Powell made in a speech earlier this month, which helped spark expectations of a near-term interest rate cut.

Notably, the Fed also omitted its reference to remaining "patient" when determining future changes to interest rates.

The central bank also revealed that its decision to leave rates unchanged was not unanimous, with St. Louis Fed President James Bullard preferring to lower rates by 25 basis points.

Powell acknowledged in his post-meeting press conference that "Many participants believe that some cut to the fed funds rate would be appropriate in the scenario they see as most likely."

Looking ahead, the Fed downwardly revised its forecasts for consumer price inflation in 2019 but left its GDP growth expectations unchanged at 2.1 percent.

The forecast for interest rates at the end of 2019 was also unchanged from the March meeting, while the projections now point to at rate cut in 2020.

The Fed's dot plot projections show eight members expect rates to be unchanged by the end of the year and a matching number expect at least one rate cut. One member expects a rate hike.

By the end of 2020, nine members expect a rate cut, five expect rates to remain unchanged and three expect an increase in rates.

CME Group's FedWatch Tool currently indicates an 85.2 percent chance the Fed will cut rates by 25 basis points at its next meeting at the end of July.

President Donald Trump has been urging the Fed to cut rates and added further pressure in remarks to reporters on Tuesday by suggesting he would consider demoting Powell if the central bank does not act.

"Well, let's see what he does," Trump said when asked if he still wants to demote Powell. "They're going to be making an announcement pretty soon, so we'll see what happens."

Trump cited European Central Bank President Mario Draghi's recent remarks hinting at additional stimulus, which the president has described as "unfair to the U.S."

"I can tell you that Draghi and the EU, if you look at what's going on with the euro, they have a much different stance than our folks do," Trump said.

Powell has denied that monetary policy decisions are impacted by politics, although some analysts accused the Fed of capitulating to Trump's demands by lowering its forecast for interest rates earlier this year.

The Fed Chairman indicated during his post-meeting press conference that he intends to serve his four-year term as head of the central bank.

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