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Fed keeps interest rates unchanged, cites softer job growth

The Federal Reserve is keeping U.S. interest rates at record lows in the face of persistent threats from a weak international economy and excessively low inflation.

Fed officials say in a statement that the U.S. economy is still expanding modestly. But in a nod to recent weaker data, they said the pace of job gains had slowed.

While it expressed concern about global pressures, the Fed removed a sentence from its September statement that warned about global pressures following news of a sharper-than-expected slowdown in China.

"Household spending and business fixed investment have been increasing at solid rates in recent months, and the housing sector has improved further; however, net exports have been soft," the Fed said in a policy statement after wrapping up a two-day meeting.

The Fed offered little clarity on the likely timing of a rate hike. Some Fed officials have signaled a desire to raise rates before year's end. But tepid economic reports have led many analysts to predict no hike until 2016.

The central bank was widely expected to hold off in raising rates this week amid signs that the U.S. economy has lost momentum in recent months. Payroll gains in August and September were surprisingly weak, while the strong dollar has dented U.S. exports. Forecasters expect gross domestic product between July and September of well under 2 percent.

But in a signal that a rate hike could occur at their last meeting of the year in December, policymakers sounded less gloomy about global economic pressures. They removed a sentence from their September statement that had warned about global pressures after news of a sharper-than-expected slowdown in China.

"They implied they'd do it this year," Patrick O'Keefe, director of economic research at the accounting firm CohnReznick, said after the Fed issued its statement after ending its latest policy meeting. "The economy is not cooperating. It has to be immensely frustrating ...The global economy is still decelerating and we're seeing a softening of growth domestically."

Ian Shepherdson, chief economist with Pantheon Macroeconomics, thinks a December rate hike hinges on how the labor market fares in the interim. "Some combination of payrolls, unemployment and wages signalling continued improvement will be enough" to convince the Fed to lift rates for the first time since 2006, he said in a research note.

The Fed has kept the target for its benchmark funds rate at a record low in a range of zero to 0.25 percent since December 2008.

Stocks fell in the minutes after the Fed released its policy statement, but then made up some of those losses. At 2:45 p.m. Easter time, the S&P 500 was up 3 points, or 0.2 percent, to 2,069. The Dow Jones Industrial Average rose 21 points, 0.1 percent, to 17,602. The Nasdaq Composite added 11 points to 5,040.

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