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Fed holds steady on bond buying, keeps key interest rate near zero

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WASHINGTON -- Federal Reserve policymakers voted Wednesday to hold steady on short-term interest rates and the central bank’s bond-buying program, but indicated that they expected economic growth to pick up.

Following a two-day meeting, the Federal Open Market Committee offered no additional guidance on when it would start reducing its monthly purchases of $85 billion in bonds.

The lack of significant new language likely meant the Fed is still on track to begin reducing those purchases later this year, as Fed Chairman Ben S. Bernanke said in his quarterly news conference last month. The bond purchases are designed to push down long-term interest rates.

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The committee approved its statement Wednesday on a 11-1 vote. Esther L. George, president of the Federal Reserve Bank of Kansas City, cast the lone dissenting vote, citing concern that the “continued high level of monetary accommodation increased the risks of future economic and financial imbalances” and could drive up inflation, the committee said.

The statement’s language was almost identical to the one issued after the previous meeting in June, with a few notable exceptions.

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The Fed said economic activity had expanded at a “modest pace,” a slight downgrade from the “moderate pace” it cited in the June statement. But Fed officials offset that by slightly upgrading their general outlook, saying they expected the pace of growth to “pick up from its recent pace.”

Fed policymakers noted that mortgage rates have risen since June and expressed some more concern about inflation, noting that price growth “persistently below” the central bank’s 2% annual objective “could pose risks to economic performance.”

Still, the Fed statement said officials expected inflation “will move back toward its objective over the medium term.”

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Fed policymakers also reiterated they planned to keep the central bank’s key short-term interest rate at near zero at least as long as the unemployment rate remained above 6.5%. The rate was 7.6% in June and, according to Fed projections, will not drop below 6.5% until at least 2015.

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