Federal Reserve keeps interest rates near record lows

Last Updated Jul 27, 2016 2:20 PM EDT

WASHINGTON -- The Federal Reserve is keeping interest rates unchanged while noting that near-term risks to the economy have diminished.

"The Fed seems intent on telling the markets that a September hike is a possibility," Peter Boockvar, chief market analyst at the Lindsey Group, emailed. "They do this not because they are intent to raise but to just give them flexibility with the markets as not to put them offside's if the data meets their rate hike threshold in coming months."

The Fed says that the U.S. job market has rebounded, with strong job gains in June following weak growth in May. But it says in a statement after its latest policy meeting that it still plans to monitor global economic threats and financial developments to ensure they don't slow the economy.

The central bank gave no hint of when it might resume the rate hikes it began in December, when it raised its benchmark rate from a record low.

Some economists think a hike is possible in September, if hiring remains solid and the turbulence that followed Britain's vote to leave the European Union continues to stabilize.

"It's not about action or inaction today, today's important for the current assessment and the setup for the next meeting," said Jim Russell, a principal and portfolio manager at Bahl and Gaynor. "If things are firm economically -- the GDP prints and employment numbers, if they were to firm up between now and September, there's a fairly credible case they could do it then, but it's probably December," he added of when the central bank might hike rates again.

The decision to leave its key rate unchanged in a range of 0.25 percent to 0.5 percent was approved on a 9-1 vote. Esther George, the president of the Fed's Kansas City regional bank, dissented for the third time this year, arguing for an immediate quarter-point rate hike.

The more positive tone in this statement, compared with the previous statement in April, will likely raise expectations that the central bank could be ready to boost rates at it September meeting if the economy keeps improving.

"Near-term risks to the economic outlook have diminished," the Fed said.

But it repeated a previous pledge to "continue to closely monitor inflation indicators and global economic and financial developments."

A few months ago, it was widely assumed that the Fed would have resumed raising rates by now. But that was before the U.S. government issued the bleak May jobs report and Britain's vote last month to quit the EU triggered a brief investor panic. Since then, though, a resurgent U.S. economy, the bounce-back in hiring and record highs for stocks have led many economists to predict a Fed move by December if not sooner.

June, employers added 287,000 jobs, the most since October 2015. But uncertainty about the global economic consequences of Britain's exit from the EU remains.

In December, when the Fed raised its benchmark rate from a record low near zero, it also laid out a timetable for up to four additional rate hikes this year. But as 2016 began, intensified fears about China's economy and a plunge in oil prices sent markets sinking and led the Fed to delay further action.

Once the markets stabilized, the Fed signaled a likely rate increase by midyear. Anemic hiring in April and May, though, raised concerns, and it left rates alone. The central bank was also affected by Britain's forthcoming vote on whether to leave the EU, anticipation of which had rattled investors.

When Britain did vote to leave the union and markets sank, some economists even suggested that the Fed's next move might be to cut, rather than raise, rates. Now, though, the pendulum has swung back, especially after the arrival of a reassuring June jobs report. The Standard & Poor's 500 stock index had plunged 5.3 percent in the two trading days after Britain's vote. It has since regained all those losses - and set new highs.