United States Federal Reserve officials on Wednesday kept the central bank's $US85 billion-per-month bond-buying program in place, saying that they wanted to see more evidence that the economy can sustain improvement before scaling back its bond purchases, but they made clear that they are poised to reduce the program if they saw more evidence of a strengthening economy.
Fed officials pointed to concerns that financial conditions had tightened in recent months and that those conditions could slow the economy if sustained.
Fed officials were on the fence in the days leading up to the meeting, even though many investors were convinced the central bank would make a small reduction to the bond-buying program at the September meeting.
The Fed's policy-making committee said it "decided to await more evidence that progress will be sustained before adjusting the pace of its purchases" in the formal statement released after the meeting. The Fed said its bond purchases were "not on a preset course."
Fed chairman Ben Bernanke is likely to be grilled about the Fed's next step at his press conference beginning 2.30 ET (0430 AEST Thursday morning).
The Fed employed the latest round of bond buying about a year ago in a bid to push down long-term interest rates and spur more investing, spending and hiring. So far this year it has been buying $85 billion per month in mortgage and US Treasury bonds.
Fed officials also voted to keep short-term interest rates near zero, where they have been pinned near zero since late 2008. Most Fed officials indicated in their latest economic projections, also released Wednesday, that they expect to make the first interest-rate increase in 2015 or later.
New Fed forecasts for the economy and monetary policy show most officials expect to keep interest rates low well into the future. 10 of 17 Fed officials said they expected the central bank's benchmark interest rate, which is called the fed funds rate, to be at or below 2% by the end of 2016. 14 of 17 officials said they don't expect the Fed to start raising the fed funds rate until 2015 or later.
The forecasts also highlight the complex economic environment that Mr Bernanke confronts. Fed officials, who have been consistently disappointed by economic growth, nudged down their growth forecast for this year and next year, projecting growth between 2% and 2.3% in 2013 and between 2.9% and 3.1% in 2014. Yet Fed officials' view of unemployment hasn't changed much. They expect the jobless rate to keep falling to between 7.1% and 7.3% by the end of next year, which is little changed from their June projections.
While market participants panicked when Mr Bernanke made the first hints in May that the Fed was considering winding down the bond-buying program, many investors came to expect the central bank to take a small step toward pulling back on purchases at the September meeting.
Nine out of 10 Fed officials voted to pull back on the bond-buying program and keep short-term interest rates near zero
Kansas City Fed president Esther George voted against the committee's action because she thought continued accommodation at the current level could hurt financial stability. Ms George has dissented at all six policy meetings this year.
All seven Fed governors vote at every policy meeting, as does the president of the Federal Reserve Bank of New York, William Dudley. At this meeting, however, there were only five Fed governors in attendance at this meeting, however; Governor Sarah Bloom Raskin did not attend the meeting in light of her pending nomination to be the next deputy Treasury secretary and Elizabeth Duke left the Fed at the end of August.
The presidents of the 11 other regional Fed banks vote on a rotating basis. This year, in addition to Ms. George, Chicago Fed President Charles Evans. Boston Fed President Eric Rosengren, St. Louis Fed President James Bullard and Kansas City Fed President Esther George can vote.