The Federal Reserve held rates steady in its first policy-setting meeting of 2020, changing little in its economic outlook as the U.S. economy continues to extend its longest expansion on record.

The Federal Open Market Committee announced Wednesday that it decided to keep rates in the current target range of 1.50% to 1.75%, continuing to describe the economy as “rising at a moderate rate.” The four new voting members (from the Philadelphia, Cleveland, Minneapolis, and Dallas Feds) supported the unanimous decision.

But the Fed downgraded its assessment of household spending, originally describing consumption by the U.S. consumer as “strong” in December, but now characterizing activity as “moderate.”

The Fed changed little else in its policy statement. The Fed tweaked its description of inflation to say that policymakers see current policy supporting inflation “returning” to its 2% target, as opposed to “near” its 2% target as the December statement noted. The semantic change was discussed in the December meeting, per the Fed minutes, and clarifies that the Fed would not be comfortable with inflation drifting below target.

The Fed also made a technical change by saying it would raise the interest it pays on reserves and excess reserves from 1.55% to 1.60%.

To transmit its aspirational interest rates into the market, the Fed pays interest on the reserves that banks park at the central bank. Since its October meeting, the Fed paid 1.55% in interest on excess reserves, closer to the lower end of the central bank’s current target range. Raising the interest it pays by five basis points should in theory move the effective interest rate closer to the middle of its range.

The Fed made a similar tweak in May, when it adjusted the interest on excess reserves down from 2.40% to 2.35%. At the time the Fed was targeting rates between 2.25% to 2.5%.

Shifting focus to the balance sheet

With the Fed making no move on rates, attention may shift to the Fed’s balance sheet in Chairman Jerome Powell’s press conference.

Over the last four months, the Fed has added almost $400 billion in assets to its holdings as it purchases about $60 billion of short-term Treasury bills a month. The Fed says that the balance sheet re-expansion is not the same as quantitative easing, which explicitly sought to ease market conditions by absorbing securities and longer-term government debt.

Powell could also face questions on how policymakers are thinking about geopolitical risks that have newly emerged, such as conflicts in the Middle East and the Coronavirus outbreak in China.

Last year, the Fed cut interest rates three times for a total of 75 basis points in the face of the U.S.-China trade war and geopolitical risks abroad. The Fed also pointed to tepid inflationary pressures as signs that the central bank needed to provide monetary easing.

But the Fed signaled in its December meeting that policymakers feel comfortable with leaving rates where they are now. The dot plots, which map out policymakers’ projections for where they could see interest rates going in the future, signaled that the Fed may not move on rates at all through 2020.

Fed policymakers have said they would like to see the impact of its 2019 rate cuts, since monetary policy adjustment can take time before they show effects on the economy. The Fed may also be hesitant to move on rates in an election year, when monetary policy could get wrapped up into politics.

President Donald Trump tweeted this week that he would like the Fed to lower rates further so that the U.S. government can refinance its debt.

Brian Cheung is a reporter covering the banking industry and the intersection of finance and policy for Yahoo Finance. You can follow him on Twitter @bcheungz.

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