Fed signals interest rate cuts possible later this year

WASHINGTON (Reuters) – The U.S. Federal Reserve on Wednesday signaled it could cut interest rates by as much as half a percentage point over the remainder of this year, as it responded to increased economic uncertainty and a drop in expected inflation.

The Fed, which held rates steady after the end of its latest two-day policy meeting, said it “will act as appropriate to sustain” a nearly 10-year economic expansion and dropped a promise to be “patient” in adjusting rates. Nearly half its policymakers now show a willingness to lower borrowing costs over the next six months.

Even policymakers who did not write down a forecast for a rate cut this year believe “that the case for somewhat more accommodative policy has strengthened,” Fed Chairman Jerome Powell said in a news conference following the meeting.

The baseline outlook remains “favorable,” he said, and “there was not much support for cutting rates now at this meeting.” But, he added, there will be plenty of incoming data in the near term that will help policymakers figure out if the risks of a less favorable outcome continue to rise.

“We will act as needed, including promptly if that’s appropriate, and use our tools to sustain the expansion,” he said.

Interest-rate futures surged after the Fed’s policy statement and projections and Powell’s remarks, showing traders are now betting heavily on three rate hikes by the end of the year.

Reporting by Howard Schneider, Jason Lange and Ann Saphir; Editing by Paul Simao

Our Standards:The Thomson Reuters Trust Principles.

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