Traders have piled on bets the Fed would lower interest rates multiple times by year-end as trade tensions between the United States, China and other trading partners have exacerbated a softening in global business activities.
While the economy remains strong, "Uncertainties about this outlook have increased", the Fed's rate-setting body said in a statement released Wednesday afternoon after two days of deliberations.
In late US trading, federal funds futures implied traders saw a 100% likelihood the Fed would cut the target range on short-term interest rates by a quarter point to 2.00%-2.25% in six weeks, compared with an 86% chance late on Tuesday, CME Group's FedWatch program showed.
President Trump speaks to the press about Federal Reserve Chairman Jerome Powell and European Central Bank President Mario Draghi. "This feels more like the Fed sees the coming cut as more of an issue around inflation/insurance than growth".
"We will act as needed, including promptly if that's appropriate, and use our tools to sustain the expansion", he said, adding that if the Fed does ease monetary policy by cutting rates, it may also halt a gradual slimming of its massive balance sheet. "You had seven members that are now looking for two cuts in 2019", said Jacob Oubina, senior US economist at RBC Capital Markets.
The Federal Reserve chairman, Jerome Powell, has responded to reports that Donald Trump is seeking to fire or demote him.
"Maybe this goes to the point that the China trade situation is such a critical pivot for whether the Fed cuts or not". Wages are rising, he added, "but not at a pace that would provide much upward impetus" to inflation. Even though the Fed upgraded its 2019 GDP forecast and lowered their unemployment rate projections, their next move should be a rate cut and not a hike.
The Fed did not give in to pressure to change rates, leaving the federal-funds rate in a range between 2.25% and 2.5%.