WASHINGTON — In suspending its previous plans to continue raising rates this year, the Federal Reserve signaled that its march toward higher interest rates may be ending sooner than expected.
The Fed’s chairman, Jerome H. Powell, said economic growth remained “solid” and the central bank expected growth to continue. But in a sharp reversal of the Fed’s stance just six week ago, Mr. Powell said the Fed had “the luxury of patience” in deciding whether to raise rates again.
“The case for raising rates has weakened somewhat,” Mr. Powell said, pointing to sluggish inflation, slowing growth in Europe and China, and the possibility of another federal government shutdown.
“My colleagues and I have one overarching goal,” Mr. Powell said at a news conference on Wednesday after a two-day meeting of the Fed’s policymaking committee, “to sustain the economic expansion.”
The Fed left its benchmark interest rate unchanged at its first meeting of 2019, a decision that was widely expected. What surprised markets was the indication that rates, which are in a range of 2.25 percent to 2.5 percent, may stay put for some time.
Investors expressed their enthusiasm around the globe early Thursday. Major Asian markets like Japan and Hong Kong rose by about 1 percent, and European stocks opened higher. Futures markets that try to predict stock performances indicated Wall Street would open higher too.
On Wednesday, the S&P 500-stock index climbed sharply after the Fed announcement and ended the day up 1.55 percent. Yields on shorter-term Treasury securities, which are heavily influenced by Fed policy, declined as investors concluded that any near-term interest rate increases were off the table.
The Fed’s newfound caution is likely to delight President Trump, who argued loudly and publicly through much of 2018 that the Fed should stop raising its benchmark rate, which he said would snuff out the economic expansion. While the president did not address the Fed’s decision directly, he wrote on Twitter: “Dow just broke 25,000. Tremendous news!”
Some on the other side of the political spectrum also supported the Fed’s move, saying the slow pace of inflation allowed the Fed to refrain from raising rates, so that job and wage growth could continue.
Jared Bernstein, an economist at the left-leaning Center on Budget and Policy Priorities, summarized the Fed’s new policy stance as “Don’t just do something, stand there!” He added that the new approach “seems right to me.” Mr. Bernstein said domestic growth was under pressure from tighter financial conditions, the slowdown in global growth and what he called “Trumpian chaos.”
“Tightening under these conditions would be unnecessary roughness,” he said.
For the last several years, the Fed said consistently that it planned to keep raising interest rates. The pace was uncertain, but the direction was clear. Wednesday’s statement omitted previous language indicating that “some further gradual increases” would be warranted. Instead, it said the Fed would be “patient” in evaluating the health of the economy. And it suggested the Fed stood ready either to raise or to cut rates, depending on economic conditions.
Reinforcing this more cautious tone, the Fed also announced in a separate statement that it was prepared to slow or even reverse the steady slimming of its bond portfolio. This, too, was a striking shift. The Fed said in December that it was committed to steadily reducing its holdings of Treasuries and mortgage bonds, which it amassed during the financial crisis to help bolster the economy.
The Fed’s policymaking committee voted unanimously for the changes.
Fed officials had signaled the shift in their thinking in recent weeks, aligning on the theme of patience with unusual consistency, leaving little doubt of their intentions.
Still, the strength of the shift caught analysts and investors by surprise, particularly given Mr. Powell’s more hawkish comments at the end of last year.