Trump’s Policies, Not His Insults, Contributed to the Fed’s Shift

Trump’s Policies, Not His Insults, Contributed to the Fed’s Shift

Mr. Powell, by contrast, said on Wednesday that the economic outlook was deteriorating for reasons unrelated to the Fed’s policies. He pointed to storm clouds including economic weakness in China and Europe and tightening financial conditions, as well as the impact of Mr. Trump’s policies.

He made the nuanced point that the Fed still regards solid economic growth as the most likely outcome for the coming year but that result is now somewhat less likely.

“At such times, common-sense risk management suggests patiently awaiting greater clarity,” he said.

The persistent sluggishness of inflation, which has remained below the Fed’s preferred 2 percent annual pace since the 2008 crisis, also played a role. Mr. Powell said the Fed had the luxury of being patient because the risk of higher inflation “appears to have diminished.”

“It seems to me that what’s happened is the Fed is saying, ‘We’re more concerned now about the secular stagnation issues than inflation at this moment,’” said Lewis Alexander, the chief United States economist at Nomura. “And I think to be perfectly frank that’s a perfectly reasonable place for them to be.”

Analysts said the negative reaction of financial markets after the Fed’s previous meeting, in December, was a particularly important factor. The Fed raised rates and predicted two more increases in 2019. Mr. Powell also emphasized the Fed’s commitment to reducing bond holdings, which some investors saw as overly aggressive.

“They were planning on roaring forward with this balance sheet roll-off, and the market is like: ‘Oh, my God! That will crush the economy!’” said Julia Coronado, a former Fed economist and the president of MacroPolicy Perspectives. “And so they recalibrated. Good.”

Mohamed A. El-Erian, chief economic adviser at the financial firm Allianz, said the Fed’s decision Wednesday “came as absolutely no surprise.” Since the global financial crisis, he said, the Fed has backed down each time investors objected to the tightening of monetary policy.

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