Fed keeps rate at record low but will consider hike in Dec.

WASHINGTON (AP) – The Federal Reserve (Fed) is keeping its key short-term interest rate at a record low in light of a weak global economy, slower US hiring and subpar inflation. But it signaled the possibility of a rate hike in December.

A statement the Fed issued Wednesday said it would monitor job growth and inflation to determine “whether it will be appropriate to raise the target range” for its benchmark rate at its next meeting.

It marked the first time in seven years of record-low rates that the central bank has explicitly raised the possibility that it could raise its key rate from near zero at its next meeting.

In a further sign that a hike could occur in December, the Fed's policymakers sounded less gloomy about international economic pressures. They removed a sentence from their September statement that had warned of global weakness stemming from a sharperthan-expected slowdown in China.

“The Fed sent its clearest signal yet that, pending decent data, it has the December meeting in its sights for the first rate hike,” said Michael Feroli, an economist at JPMorgan Chase and a former Fed staffer.

Stocks initially gave up some of their early gains after the Fed's announcement but then surged at the end of trading. The Dow Jones industrial average closed up nearly 200 points, or more than 1 percent.

Bond yields rose as traders anticipated higher US rates. The yield on the 10-year Treasury note rose to 2.10 percent from 2.04 percent late Tuesday.

Ian Shepherdson, chief economist at Pantheon Macroeconomics, said he expects a December rate increase if the job reports for October and November improve over September, when hiring slowed.

“Some combination of payrolls, unemployment and wages signaling continued improvement will be enough,” Shepherdson wrote in a note to clients.

Still, the Fed noted that the economy is expanding only modestly. And in a nod to recent weaker data, the policymakers expressed some concern about the pace of hiring.

While many Fed officials have signaled a desire to raise rates before year's end, some tepid economic reports in recent weeks had led some analysts to predict no hike until 2016.

The Fed's statement Wednesday was approved on a 9-1 vote, with Jeffrey Lacker, president of the Fed's Richmond regional bank, dissenting. As he had in September, Lacker favored a quarter-point rate increase.

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. After the September meeting, Yellen noted that 13 of 17 Fed officials expected the first rate hike to occur this year. But some economic reports since then have been lackluster, including the slowdown in job growth last month.

Some of the US weakness has occurred because of a global slump, led by China, that's inflicted wideranging consequences. US job growth has flagged. Wages and inflation are subpar. Investors are nervous. And manufacturing is being hurt by a stronger dollar, which has made US goods pricier overseas.

On the other hand, the Fed said in its statement Wednesday that consumer spending and business investment have been rising “at solid rates” and that the housing market has improved further.

But the Fed is still missing its target of achieving annual price increases of 2 percent, a level it views as optimal for a healthy economy.

At the start of the year, a rate hike was expected by June. A harsh winter, though, slowed growth. And then in August, China announced a surprise devaluation of its currency. Its action rocked markets and escalated fears that the world's second-largest economy was weaker than thought and could derail growth in the United States.

Uncertainty was too high, Fed officials decided, for a rate hike in September.