Kevin Wolf / AP
Updated at 4:16 pm ET
The US Federal Reserve says interest rates could be raised this year, despite signs of economic slowdown.
The Federal Reserve's Open Market Committee left Wednesday its target rate unchanged from 2.25% to 2.5%. More than half of the committee members indicated that they were not planning any further rate increases this year. This is a dramatic change from December when the Fed predicted up to three rate increases in 2019.
"We do not see the need to hurry to judge," said Federal Reserve Chairman Jerome Powell, explaining the committee's wait-and-see approach. "It may take some time before employment prospects and inflation call for a policy change."
Policymakers pointed to the slow pace of hiring in February, when only 20,000 jobs were created, as well as the slowdown in household spending and business investment.
The Fed also lowered its economic growth forecast for 2019 to only 2.1%. Unemployment forecasts rose slightly to 3.7%, a rate still low.
Despite these warning signs, Powell pointed out that the outlook for the US economy is still favorable. Consumer spending could rebound for example after a disappointing holiday shopping season.
"Given the generally favorable conditions of our economy, my colleagues and I will be patient to evaluate the possible changes to the policy direction," Powell said.
Greg McBride, Chief Financial Analyst at Bankrate.com, said the US economy outperformed other countries around the world. "The Fed is clearly warning against a sharp economic slowdown, but in a global context, the US economy is still the best home in a disadvantaged neighborhood," he said.
The Fed's forecasts for economic growth this year are well below the Trump administration's forecast. Powell acknowledged that the economy could grow faster if more people entered the labor force.
But he added that the slowdown in growth in China and especially in Europe presents "headwinds" for the United States. And ongoing trade disputes are not helping.
"There is a lot of uncertainty," said Powell, as companies face rising costs of imported products and retaliatory tariffs that hurt exports. "It has been some time since our professional contacts cared much about us."
Wall Street first rallied to the Fed's dovish stance, but then downgraded. The Dow Jones Industrial Average and the S & P 500 finished the day down, while the Nasdaq was slightly higher.
Some Fed observers have warned that the committee may have been bent unnecessarily, only to change course later this year if the economy were to regain strength.
"By moving away from three rises this year and no longer last September, they are highly exposed if wage gains continue to accelerate," said Ian Shepherdson, chief economist at Pantheon Macroeconomics.
Powell said rising wages were a boon to the economy and he was not worried for the time being that higher wages would trigger a spike in inflation.
"Wages have gone up in the last two years and are now at higher levels and healthier, and that's a good thing," Powell said. "A lot of wage gains have been spent on the lowest paid workers, as it can happen at the end of the cycle, which is also a good thing."
He also cautioned against over-reading committee members' forecasts of future rate hikes.
"We always emphasize that interest rate projections in [summary of economic projections] are not a decision of the committee, "said Powell. They are not a committee plan. "
The Fed has slowly reduced the size of the $ 4 trillion asset portfolio it has built up during and after the recession to encourage economic growth. Powell said runoff from his assets is expected to slow in May and end in September.