2nd LD-Writethru: U.S. Fed keeps interest rates unchanged

U.S. Federal Reserve on Wednesday keeps its federal fund rate unchanged after concluding its two-day meeting.

"The (Federal Open Market) Committee continues to closely monitor inflation indicators and global economic and financial developments" in its process to foster maximum employment and price stability, said the Fed in a statement on Wednesday.

The Fed raised its target range for the federal funds rate to 0.25 percent to 0.5 percent in December last year, the first rate hike in nearly a decade, marking the end of an era of extraordinary easing monetary policy.

But the turmoil in financial markets and a slowdown in global economy since the start of the year have raised increased concerns about the strength of the U.S. economy, forcing Fed policymakers to hold off on any further rate hikes since then.

In Wednesday's statement, Fed officials gave a mixed assessment about the U.S. economy, saying that the labor market has slowed its improvement pace, while growth in economic activity appeared to have picked up since April.

The recent mixed economic indicators implied that it's appropriate for the central bank to take a cautious approach in adjusting monetary policy, and in this regard the central bank decided to keep the interest rates unchanged, Fed chairwoman Janet Yellen said at a press conference on Wednesday.

Consumer spending picked up and will continue to improve, and the labor market will continue to strengthen despite the recent slow improvement, said Yellen.

But inflation still fell short of the Fed's target, and it needs more incoming data to assess the underlying economic strength, said Yellen.

In addition, vulnerabilities in the global economy remain, such as Britain's vote on whether to stay in Europe Union or not, sluggish global growth and low inflation environment, according to the Fed chair.

"Caution is all the more appropriate, given that short term interest rates are still near zero, which means that monetary policy can more effectively respond to surprisingly strong inflation pressures in the future than to a wakening labor market and falling inflation," said Yellen.

The central bank's updated projections released Wednesday showed that policymakers expected the federal funds rate to rise to 0.9 percent at the end of 2016, the same forecast as they did in March.

This implies two quarter-percentage-point rate increases this year, but 6 out of 17 officials predict just one rate increase this year.

Fed officials also expected lower rate path in 2017 and 2018, and their forecast for longer run interest rates was 3 percent, lower than their March forecast of 3.3 percent.

The Fed officials also lowered their forecast for GDP growth in 2016 to 2 percent from its March forecast of 2.2 percent.

They still expected the job market to continue to improve in the medium term and forecast the unemployment rate will reach 4.7 percent at the end of this year, the same forecast as they did in March. Endit