US Fed hints at rate cuts later this year: Top takeaways from June meeting

The US Federal Reserve kept the policy rate unchanged in the range of 2.25 - 2.50 per cent in its June monetary policy meet that concluded on Wednesday but hinted at possible rate cuts later this year for the first time in more than a decade if the economic outlook weakens. 

The FOMC (Federal Open Market Committee) also dropped "patient" stance citing risks to economic growth.

Following the policy announcement, the US stocks ended in the green with the S&P 500 approaching a record high. The Dow Jones Industrial Average rose 0.15 per cent to end at 26,504.27 points, while the S&P 500 gained 0.30 per cent to 2,926.44. The Nasdaq Composite added 0.42 per cent to 7,987.32.

In the money market, however, US Government Bond yields declined. 

Here's a look at the key highlights of the policy meeting - 

Rate cuts in the offing: Federal Reserve officials maintained status quo on rates this time but indicated readiness to slash rates in the coming months to fight risks to the growing domestic as well as global economic outlook. “We are quite mindful of the risks to the outlook and are prepared to move and use our tools as needed,”  Fed chair Jerome Powell said in a press conference following the release of a policy statement in which the central bank said it “will act as appropriate to sustain” a nearly 10-year economic expansion.

Trump's trade policies a worry: Recently, the global economic outlook and uncertainty over Donald Trump’s trade policies have led to a pullback in business investment and sentiment. Although economic growth is expected to continue Powell said policymakers are concerned over the unpredictable outcome of President Donald Trump’s trade dispute with China and other countries.

Trump slapped new tariffs on China on May 5, took other steps that upended markets, and yet of late has sent hopeful signals of progress in the dispute when he meets Chinese officials next week - difficult terrain for the Fed to navigate, Reuters reported.  

Interest-rate projections: Interest-rate projections released Wednesday showed eight of 17 officials expect they will cut the benchmark rate by year’s end from its current level while seven of those officials see lowering the rate by a half percentage point by the close of 2019. Eight officials projected the Fed would hold rates steady, and one projected a rate increase, The Wall Street Journal reported. 

Change of language: In an important development, the US Fed's rate-setting committee dropped a reference in their statement to being “patient” on borrowing costs which implied rates were on hold. Instead, it said uncertainties about the economic outlook have increased. The change in tone follows attacks on the Fed by the US President Donald Trump for not doing more to bolster the economy. 

Inflation to miss target: The Fed officials have lowered inflation projection from 1.8 per cent to 1.5 per cent for the year and they also expect to miss their 2 per cent target next year as well, which is seen as a blow for a central bank that has missed that goal for years, said a Reuters report. Policymakers “expressed concerns” about the pace of inflation’s return to 2 per cent, Powell said. Wages are rising, he added, “but not at a pace that would provide much upward impetus” to inflation.