Fed holds rates steady in nod to global economic weakness

The U.S. Federal Reserve kept interest rates unchanged on Sept. 17 in a nod to concerns about a weak world economy, but left open the possibility of a modest policy tightening later this year.

In what amounted to a tactical retreat, the U.S. central bank said an array of global risks and other factors had convinced it to delay what would have been the first rate hike in nearly a decade.

"Recent global economic and financial developments may restrain economic activity somewhat and are likely to put further downward pressure on inflation in the near term," the Fed said in its policy statement following the end of a two-day meeting. It added the risks to the U.S. economy remained nearly balanced but that it was "monitoring developments abroad."

However, the central bank maintained its bias toward a rate hike sometime this year, while lowering its long-term outlook for the economy. Fresh economic projections showed 13 of 17 Fed policymakers foresee raising rates at least once in 2015, down from 15 at the last meeting in June. Four policymakers now believe rates should not be raised until at least 2016, compared to two who felt that way in June.

The Fed has policy meetings in October and December.

In deciding when to hike rates, the Fed repeated that it wanted to see "some further improvement in the labor market," and be "reasonably confident" that inflation will increase.

The dollar was marked lower against the euro and the yen, falling one percent against the European currency. Stocks initially edged higher before turning lower in choppy trade while the three year Treasury yield hit a one-week low.

Taken as a whole, the latest Fed projections of slower GDP growth, low unemployment and still low inflation...