Fed keeps interest rate unchanged at 0-0.25%

The US Federal Reserve on Wednesday decided to leave the interest rate on federal funds unchanged at 0 to 0.25 per cent ''in order to support continued progress toward maximum employment and price stability.''

The Fed Open Markets Committee said it would raise the target range for the federal funds rate when it sees further improvement in the labour market and is reasonably confident that inflation will move back to its 2 per cent objective over the medium term.

The committee also decided to maintain its existing policy of reinvesting principal payments from its holdings of agency debt  in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction.

The policy of keeping holdings of longer-term securities at sizable levels should help maintain accommodative financial conditions, the Fed said in a release.

The committee noted that US economic growth slowed during the winter months, after the March monetary policy review, in part reflecting transitory factors. The pace of job gains moderated, and the unemployment rate remained steady, suggesting underutilisation of labor resources.

Growth in household spending declined; households' real incomes rose strongly, partly reflecting earlier declines in energy prices, and consumer sentiment remains high.

Business fixed investment softened, the recovery in the housing sector remained slow, and exports declined.

Inflation continued to run below the committee's longer-run objective, partly reflecting earlier declines in energy prices and decreasing prices of non-energy imports.

Fed said the policy is consistent its mandate to foster maximum employment and price stability.

Although growth in output and employment slowed during the first quarter, the committee continues to expect that, with appropriate policy accommodation, economic activity will expand at a moderate pace, with labour market indicators continuing to move toward levels the committee judges consistent with its dual mandate.

Still, the committee noted, the risks to the outlook for economic activity and the labour market is nearly balanced. Inflation is anticipated to remain near its recent low level in the near term, but the committee expects inflation to rise gradually toward 2 per cent over the medium term as the labour market improves further and the transitory effects of declines in energy and import prices dissipate.

The committee said it would continue to monitor inflation closely.