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Fed stays the course on interest rates, bond purchases

Federal Reserve policymakers sharply lowered their forecast for economic growth but took note of improved conditions that should help lower the unemployment rate further yet keep short-term interest rates at or near zero until next year.

A statement released after the Federal Open Market Committee’s two-day meeting ended Wednesday projected economic growth for this year at 2.3%, down from 3% forecast in March. The downgrade reflects shrinking economic output in the first quarter, which the Fed and most experts saw as a temporary outcome of the harsh winter weather.

Economists widely expect growth in the second quarter to rise more than 3% at an annualized rate. And the Fed statement gave a slightly more upbeat assessment of the economy, noting, for example, a rebound in business investment and further improvements in the labor market.

The Fed, in its quarterly projections, also raised by a notch its outlook for inflation this year, but still sees it falling short of its 2% target.

That wasn't high enough to push the central bank to alter its policy of keeping its benchmark interest rates at zero to 0.25%. A dozen committee members expect to start raising short-term interest rates next year. One believed the increase could come this year, and three said the upswing could be put off until 2016.

At the same time, most officials now are projecting the jobless rate to drop to as low as 6% by year's end. In March, the Fed estimated the unemployment figure at between 6.1% and 6.3% in the fourth quarter, but the rate has fallen sharply since then, to 6.3% in April and May. 

The Fed also voted to continue reducing its bond purchases by $10 billion a month, lowering them to $35 billion.

 Follow us here as our reporters post comments from Fed Chairwoman Janet Yellen’s press conference at 11:30 a.m..

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