WASHINGTON: The US central bank opened its first policy meeting of the year on Tuesday (Jan 29) but has signalled clearly that it intends to hold off on any further interest rate increases.
Federal Reserve Chairman Jerome Powell and other officials have hammered home the message that the Fed can be "patient" while gauging how the US economy is likely to perform this year, after strong growth and four rate increases last year.
Powell will have another opportunity on Wednesday to make sure skittish financial markets get the message, when he holds the first of eight news conferences for the year.
With the US-China trade war already starting to slow growth - and the five-week government shutdown dealing a temporary blow to the economy but a larger hit to sentiment - markets increasingly are concerned about prospects for the US economy.
Powell has repeatedly stumbled with comments late last year sending markets to precipitous declines, forcing him and other officials to publicly walk back some statements.
But some Fed watchers say the markets have overreacted to some of the statements and to the concerns about the slowing economy since the odds of a recession this year are still slim.
"I think there is this sense that that the market is overly volatile and yes the economy is slowing down but the market is overreacting," former Fed economist Joseph Gagnon told AFP.
He said the Fed would have to "try to walk a narrow path" between acknowledging the market's concerns and sticking to its fairly optimistic forecast for solid, albeit slower growth in 2019 and tame inflation.
But he acknowledged "there's always the possibility the Fed could be wrong about its forecast, but its forecast is basically for another pretty good year this year."
The independent Congressional Budget Office on Monday estimated the government shutdown subtracted US$11 billion from the US economy in final three months of 2018 and the first quarter of 2019.
But second quarter growth will rebound and only US$3 billion is likely to be permanently lost, it said.
But CBO sees US growth slowing to 2.3 per cent this year from 3.1 per cent expected for 2018.
Chris Low of FTN Financial said Powell should not be concerned about having to change his message as conditions change.
But he warned in a research note that the central bank should not "overlook signs of trouble and assume their forecast will be right."