The Federal Reserve on Thursday held benchmark US interest rates steady and, while nodding to a recent easing in core inflation, restated that inflation remained its top concern.
The decision by the central bank's Federal Open Market Committee keeps the overnight federal funds rate target at 5.25 percent, the level it hit in June last year after 17 straight quarter-percentage point increases.
In a statement outlining its decision, the US central bank dropped a reference describing core inflation as "elevated" that had been in its two prior rate announcements, but expressed concern, nonetheless, that the easing in non-food, non-energy price increases could prove fleeting.
"Readings on core inflation have improved modestly in recent months," the FOMC said. "However, a sustained moderation in inflation pressures has yet to be convincingly demonstrated."
"The committee's predominant policy concern remains the risk that inflation will fail to moderate as expected," it said, adding that tight economic conditions were keeping that risk alive.
The dollar held steady but stocks pared gains and prices for US government bonds slipped on the announcement, as traders saw it signalling less likelihood the central bank would lower interest rates later in the year. "Clearly, the bias is not going to be a rate cut," said Giri Cherukuri, head trader at Oakbrook Investments in Lisle, Illinois.
Core inflation moderated in May and April to within range of policy-makers' presumed comfort zone of 1 percent to 2 percent. The central bank has left borrowing costs unchanged over the past year, expecting prices pressures to ease as the economy moves forward at a somewhat sluggish pace on the back of a big slide in the housing sector.
"Economic growth appears to have been moderate during the first half of this year, despite the ongoing adjustment in the housing sector," the Fed said. "The economy seems likely to continue to expand at a moderate pace over coming quarters."
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