Amid mounting risks, the Fed wisely puts rates on hold

Much as expected, the Federal Reserve left its policy rate unchanged last week, stressing new uncertainties in the economic outlook and the limits of monetary policy in managing them. This was the right call: If ever there was a time for a central bank to wait and see before altering interest rates, it’s now. Accordingly, the Fed’s new economic projections, closely watched by investors for clues on where things are headed, had no surprises about policy in the short term: They point — tentatively — to another quarter-point cut in the short-term rate this year followed by one more in 2027. In other ways, though, the summary did shift, and in potentially consequential ways. Most notably, the central bank’s policymakers raised their estimate of long-term economic growth to 2 percent from 1.8 percent. This recognizes that artificial intelligence is likely to mean faster growth in productivity, plus higher investment and consumption. This in turn will boost demand and modestly raise the “neutral” rate of interest — all with inflation expected to be back on target at 2 percent

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