Fed holds interest rates steady amid housing market slowdown

Inflation fell below the central bank's 2 percent target
By Keith Larsen | May 01, 2019 03:30PM

President Trump, Federal Reserve chairman Jay Powell, and the Federal Reserve (Credit: Getty Images and iStock)

President Trump, Federal Reserve chairman Jay Powell, and the Federal Reserve (Credit: Getty Images and iStock)

The Federal Reserve said Wednesday that it will hold interest rates steady amid signs that the housing market is slowing down.

The Fed will keep rates at 2.25 percent to 2.5 percent, stating the economy rose at a solid rate, but that inflation fell below its 2 percent target.

The decision was expected after the Fed signaled in March that it would not raise rates for the rest of the year over signs that the economy was cooling down.

The decision marks a shift from the Fed’s policy over the last few years. Last year, the Fed increased rates four times — and a total of nine times since December 2015.

Since the end of 2018, one indictor of the economy, the housing market, has showed continued signs of a slowdown. In March, new home construction in the U.S. fell to its lowest level since May 2017, according to U.S. government data. In addition, March marked the 10th consecutive month that home price growth slowed.

Still, the Fed painted a more positive picture of the economy than in its March’s statement. It said job gains have been solid and the unemployment rate has remained low. It did state, however, concerns over inflation, which could lead the central bank to reduce rates in the future.

In March, the Fed also announced that it would take a step back on its previous plans to downsize its huge portfolio of government-backed securities. The Fed has a $4 trillion asset portfolio of securities that it purchased during the financial crisis in order to boost the economy. It’s been trying to reduce that portfolio for two years as the economy has improved by letting notes mature. It said it will stop the runoff in September as the economy is slowing down.

The Fed’s latest announcement comes during heightened scrutiny of the bank’s decisions by President Trump, who recently suggested on Twitter that the Fed start cutting rates by as much as 100 basis points or 1 percent.