Fed keeps key rate unchanged

WASHINGTON (AP) — The Federal Reserve is keeping its key interest rate unchanged but signaling that it will likely raise rates before year's end.

The Fed said in a statement ending its latest policy meeting Wednesday that the U.S. job market has continued to strengthen and economic activity has picked up. But it noted that business investment remains soft and inflation too low and that it wants to see further improvement in the job market.

The central bank characterized the near-term risks to its economic outlook as "roughly balanced." It was the first time it has used that wording since late last year, when it most recently raised rates. Most analysts have said they think the Fed will next raise rates in December.

The Fed said its policy committee had concluded that "the case for an increase in the federal funds rate has strengthened but decided, for the time being, to wait for further evidence of continued progress toward its objectives."

"The Fed appears to be firmly on track for a December hike," Paul Ashworth, chief US economist at Capital Economics, said after the statement was issued.

Stock prices rose after the Fed issued its statement and extended their gains during a news conference by Chair Janet Yellen in which she laid out her case for holding off on a rate hike for now. Major stock averages closed up around 1 percent for the day.

In her news conference, Yellen offered a simple explanation for why the Fed didn't raise rates: The economy can still grow without hurting itself.

She noted that historically low rates haven't caused the economy to overheat as some analysts feared they would. Steady job gains have pulled discouraged workers back into the job market and yet inflation remains below the Fed's 2 percent target rate.

"The economy has a little more room to run than previously thought," Yellen said.

Indeed, the Fed made clear in updated forecasts it issued Wednesday that it expects growth to remain tepid for at least three years. It expects the economy to expand just 1.8 percent this year and by an almost equally sluggish 2 percent in both 2017 and 2018.