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Divided Fed holds interest rates steady but notes improving economy

 
Published Sept. 22, 2016

WASHINGTON — A divided Federal Reserve left its benchmark interest rate unchanged Wednesday, pressing ahead with its economic stimulus campaign for at least a few more weeks in the face of growing pressure to raise rates.

"The committee judges that the case for an increase in the federal funds rate has strengthened but decided, for the time being, to wait for further evidence of continued progress toward its objectives," the Fed said in a statement that reflected the views of the majority of its members.

But three members of the Fed's 10-member policymaking committee voted to raise the benchmark rate, and most Fed officials said separately that they still expected to raise the rate once before the end of the year.

The Fed said in its statement that economic conditions are improving.

"The growth of economic activity has picked up from the modest pace seen in the first half of the year," it said. There was upbeat language about the labor market continuing to "strengthen and grow."

But the statement noted that inflation remains slower than the Fed's desired pace, and it said, "Near-term risks to the economic outlook appear roughly balanced."

The Fed's next scheduled meeting is in November, just six days before the presidential election. Its final meeting of the year is in mid December.

The three dissidents, all of whom voted in favor of raising interest rates by a quarter-point this month, were Esther L. George, president of the Federal Reserve Bank of Kansas City; Loretta J. Mester, president of the Federal Reserve Bank of Cleveland; and Eric S. Rosengren, president of the Federal Reserve Bank of Boston.

The Fed also predicted that it would raise rates more slowly in future years. In a new round of economic projections published Wednesday, Fed officials predicted that the central bank's benchmark rate would rise to 1.9 percent by the end of 2018, well below their March prediction that it would reach 3 percent by the end of 2018.

They continued to settle into a new view that growth will remain sluggish for the foreseeable future. Fed officials said they expected that economic growth would not exceed 2 percent over the next three years.