The US Federal Reserve on Thursday announced that it would keep interest rates near zero as officials assessed the impact of tighter financial conditions and slower global growth on the US economy.
The Fed’s decision, widely expected by investors, showed officials still lacked confidence in the strength of the domestic economy even as the central bank has entered its eighth year of overwhelming efforts to stimulate growth.
“Recent global economic and financial developments may restrain economic activity somewhat and are likely to put further downward pressure on inflation in the near term,” the Fed said in a statement after a two-day meeting of its policymaking committee, the US Federal Open Market Committee.
The Fed still plans to raise rates this year, according to new economic projections it also published on Thursday. Thirteen of the 17 members of the committee predicted the Fed would raise rates by at least 0.25 percentage points, and six predicted an even larger increase.
The policymaking committee has scheduled meetings for next month and December, and an initial move is possible at either meeting.
Fed Chair Janet Yellen said at a news conference after the release of the statement that the decision to keep rates near zero had been a close call.
“The recovery from the Great Recession has advanced sufficiently far and domestic spending has been sufficiently robust that an argument can be made for a rise in interest rates at this time,” Yellen said.
However, she said “heightened uncertainness abroad” and slow inflation had convinced the committee to wait for more evidence, including continued job growth, “to bolster its confidence.”
Yellen said China’s economic troubles, and slower growth in other foreign economies, “bears close watching” and was a crucial reason the Fed chose to delay raising interest rates.
However, she said the Fed’s concern should not be overstated. So far, she said, foreign developments had not significantly altered the Fed’s expectations for domestic economic growth.
One official, Federal Reserve Bank of Richmond President Jeffrey Lacker voted to raise rates at the meeting, the first such dissent at a meeting this year.
Fed officials are convinced labor market conditions have nearly returned to normal. In the new round of economic projections, officials estimated the unemployment rate would stop falling when it reached 4.8 percent, just slightly below last month’s level of 5.1 percent.
“The labor market continues to improve, with solid job gains and declining unemployment,” the statement said.
However, the share of people in the US with jobs remains well below the level before the recession, and the Fed’s projections imply that some of that decline is probably permanent.
Officials also remain confident of a rebound, although perhaps a little more slowly.
Even so, Fed officials predicted the Fed’s benchmark rate would rise gradually, reaching 2.6 percent by the end of 2017. In June, they predicted the rate would reach 2.9 percent by then.
Officials also expect the rate to reach a new plateau of about 3.5 percent, less than the June prediction of 3.8 percent and significantly below the level the Fed once regarded as normal. If rates remain at that level, it would limit the Fed’s ability to respond to economic downturns.
For much of the summer, Fed officials appeared ready to start raising the central bank’s benchmark interest rate at this meeting. The unemployment rate fell to 5.1 percent last month and officials predicted continued job growth and a gradual rebound in inflation.
However, they have expressed concern that the recent stock market downturn might be a sign of weakness in the domestic economy. Moreover, Fed officials said that they saw little risk in postponing liftoff for at least a few more weeks.
Late last month, during the worst of the market turmoil, Federal Reserve Bank of New York President William Dudley said the case for raising rates this month had become “less compelling.”
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