The Federal Reserve said it sees further improvement in the labor market while confirming it will end an asset-purchase program that has added $1.66 trillion to its balance sheet.
"Labor market conditions improved somewhat further, with solid job gains and a lower unemployment rate," the Federal Open Market Committee said today in a statement in Washington. "A range of labor market indicators suggests that underutilization of labor resources is gradually diminishing," the panel said, modifying earlier language that referred to "significant underutilization" of labor resources.
Policy makers maintained a pledge to keep interest rates low for a "considerable time."
While saying inflation in the near term will probably be held down by lower energy prices, they repeated language from their September statement that "the likelihood of inflation running persistently below 2% has diminished somewhat."
Chair Janet Yellen is completing two years of bond purchases that started under her predecessor, Ben Bernanke, as the Fed nears its goal for full employment. She must now chart a course toward the first interest-rate increase since 2006 while confronting risks from a slowing global economy and declining inflation. The FOMC repeated it will consider a wide range of information in deciding when to raise the federal funds rate, which has been held near zero since December 2008. Most Fed officials expect to raise the rate next year, according to projections released last month.
The Fed said it will continue reinvesting proceeds from a balance sheet that swelled to a record $4.48 trillion in the course of three rounds of so-called quantitative easing that started in November 2008 during the longest and deepest recession since the 1930s.
The latest round was announced in September 2012, with monthly purchases of $85 billion in Treasuries and mortgage-backed securities. The Fed began a step-like reduction of purchases in January 2014, cutting them by $10 billion per meeting.
Minneapolis Fed President Narayana Kocherlakota dissented, saying that with low inflation expectations the Fed should commit to keeping rates low "at least until the one-to-two-year-ahead inflation outlook has returned to 2% and should continue the asset-purchase program at its current level."
As the Fed winds down unprecedented stimulus, the European Central Bank is contemplating its own quantitative easing program to tackle the weakest inflation in five years, and Japan is continuing purchases.
"The U.S. is a big bright spot in the world," said Stephen Cecchetti, professor of international economics at Brandeis International Business School in Waltham, Mass., and a former New York Fed research director. "Europe is still struggling quite a lot, Japan seems to be up and down, and China's having some growing pains at this point."
A cooling global economy and declining inflation are posing risks to the outlook for the U.S., which saw growth accelerate in the second quarter to the fastest pace since 2011 and unemployment drop to a six-year low last month.
A number of officials said the five-year U.S. expansion "might be slower than they expected if foreign economic growth came in weaker than anticipated," minutes of the Sept. 16-17 FOMC meeting show. Fed Gov. Daniel Tarullo said at an Oct. 11 event in Washington that he's "worried about growth around the world."
Fed funds rate futures show the probability of a rate increase by the September 2015 FOMC meeting is about 42%, compared with 76% chance at the end of last month.
