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Fed: U.S. economy growing at "modest" pace

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WASHINGTON The Federal Reserve says the U.S. economy is growing modestly, a slightly more pessimistic view than its June assessment. The Fed expects growth will pick up in the second half of the year, but the more cautious message may signal it's not ready to slow its bond purchases soon.

"Labor market conditions have shown further improvement in recent months, on balance, but the unemployment rate remains elevated," the central bank's monetary policy panel said in a statement after a two-day meeting.

The Fed said it will keep buying $85-billion-a-month in bonds to help lower long-term interest rates. And it says it plans to hold its key short-term rate at a record low near zero at least as long as the unemployment rate stays above 6.5 percent and the inflation outlook remains mild.

"To support continued progress toward maximum employment and price stability, the Committee today reaffirmed its view that a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the asset purchase program ends and the economic recovery strengthens," the panel said in a statement.

Stronger job growth has fueled speculation that the Fed could start reducing its purchases soon. But the economic growth remains sluggish and unemployment high at 7.6 percent.

The Fed is still a "good bet" to start tapering its bond purchases at its next policy meeting in September, said Ian Shepherdson, chief economist at Pantheon Macroeconomics.

Stocks were holding steady after the Fed's announcement. The Dow Jones industrial average was up 27 points, to 15,547 as of 2:15 p.m. EDT. The S&P 500 rose 5 points to 1,691.

The U.S. Commerce Department said Wednesday that the economy grew 1.7 percent in the April-to-June period, surprising experts who had expected growth of only around 1 percent.