Federal Reserve Chairman Ben Bernanke and his central banking colleagues left interest rates unchanged at historic lows Tuesday and said they see the economy growing modestly with the jobs picture improving.
"Labor market conditions have improved further; the unemployment rate has declined notably in recent months but remains elevated," the Fed's Open Market Committee said in a statement after its regular meeting to discuss economic conditions.
The Fed also said it sees continued advances in household spending and investment by businesses. Despite the upbeat tone, the Fed gave no hints of any change in monetary policy and reiterated it would keep rates low until at least through late 2014.
It warned that global financial markets still posed considerable risks for the economy. "Strains in global financial markets have eased, though they continue to pose significant downside risks to the economic outlook," the Fed statement said.
The Fed said a recent spike in energy costs would likely push up inflation but only in the short run. Richmond Fed President Jeffrey Lacker again dissented from the decision. The statement said Lacker does not see the need for exceptionally low rates through 2014.
A report on Tuesday showed retail sales posted their largest gain in five months in February, the latest data to suggest the economic recovery is on a more solid footing.
Even so, Fed officials are uncertain whether the progress reducing unemployment can be maintained given still-sluggish economic growth, and many analysts believe the central bank will launch another round of bond buying later in the year.
In a poll Friday of firms that trade directly with the Fed, 14 of 18 economists anticipated further "quantitative easing," the Fed's latest mechanism to get more cash into the economy. That survey was taken after the government said the economy created more than 200,000 jobs for the third month running in February.
The Fed cut overnight interest rates to near zero in December 2008 and has bought $2.3 trillion in bonds to boost growth. It repeated Tuesday that it was likely to hold rates at rock-bottom levels at least through late 2014 and that it would continue to rebalance its portfolio to pull down longer-term interest rates, a program that ends in June.
Analysts are looking to the Fed's two-day meetings in April and June for decisions about any new directions for policy. After both meeting, Bernanke will hold a news conference and officials will make public updated economic and interest rate projections.
Most economists think the economy will expand at a modest rate of about 2 percent in the current quarter. Bernanke said in January it would normally take a growth pace of between 2 and 2.5 percent just to hold the jobless rate steady.
While the economic recovery is nearly three years old, officials lament that the United States is still far from full employment. Although the jobless rate has fallen significantly over the last six months, it remains stubbornly high at 8.3 percent officially.
The Fed has downplayed any worries about inflation in recent months, saying it expects sluggish growth to hold price pressures in check. Officials said they expect inflation to run at or below the central bank's 2 percent target in coming quarters.
However, oil prices have been climbing in reaction to tensions over Iran's nuclear program. U.S. gasoline prices jumped in January, and even core consumer prices, which strip out volatile food and energy costs, rose by 2.3 percent over 12 months, the fastest pace in more than two years.
Rising concerns about inflation would weaken any argument at the Fed in favor of easing financial conditions further.
Reuters contributed to this report.
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