The move was a signal the US economy had recovered enough from the trauma of the Great Recession to be able to handle closer-to-normal interest rates.
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It stuck to its forecast that inflation will rise to its target of 2.0 percent “over the medium term” but that it continued to watch prices.
The central bank, led by Chair Janet Yellen, decided not to raise interest rates Wednesday at the end of its two-day meeting.
The Fed, in materials it released after a two-day meeting of its policymaking committee, also said that it now expects to raise interest rates more slowly in coming years than it had previously predicted.
Yellen, in a press briefing after the meeting, said one reason for keeping US rates steady was uncertainty surrounding an upcoming referendum to determine whether Britain would leave the European Union.
“Brexit is something we discussed and it’s fair to say it was one of the factors [in] the decision today”.
Adding to the greater sense of caution, the Fed trimmed its estimate of U.S. economic growth in 2016 to 2% from 2.2%, but left its long-run forecast intact.
The Fed also announced its calculations that United States economic growth will slow for the rest of the year and remain flat through 2018. “They needed to hit the pause button for June, but I think a July rate hike still remains a distinct possibility”. The latest report found the economy added 38,000 jobs, a fraction of what economists had expected, throwing doubt on the consensus that the economy was steadily improving. The broader Standard & Poor’s 500 stock index fell 0.2% and the Nasdaq composite lost 0.2%.
The Federal Reserve made its decision to leave the rates unchanged at a quarter percentage point as expected by several analysts.
Ms Yellen acknowledged “Brexit” was one of the factors in Wednesday’s rate decision and said Britain’s decision whether to remain or leave the European Union would have “consequences for economic and financial conditions in global financial markets”. In its statement, the USA central bank lowered its economic growth forecasts for 2016 and 2017 and indicated it would be less aggressive in tightening monetary policy after the end of this year.
The Fed left its target range for overnight lending rates between banks at between 0.25 percent to 0.50 percent, keeping on hold a campaign to lift borrowing costs that started late a year ago. The only exception is Britain’s FTSE, which fell 2 percent with the nation weighing an exit from the European Union.
“Committee continues to closely monitor inflation indicators and global economic and financial developments” in its process to foster maximum employment and price stability, said the Fed in a statement on Wednesday.
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During her press conference, Yellen said Fed policymakers said the upcoming vote was one of the reasons why the central bank kept interest rates unchanged. But it was weaker against the euro, which rose 0.1 percent to $1.1222.
