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Fed leaves rates unchanged, sees October close to stimulus program

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Investing.com -

Investing.com - The Federal Reserve on Wednesday said it was leaving its benchmark interest rate unchanged at 0.00-0.25% and added it would likely close its monthly bond-buying program in October.

While the economy and labor market are improving, the Fed won't rush to raise interest rates after it closes its monthly bond-buying program likely in October to make sure the economy can stand on its own two feet.

"On balance, labor market conditions improved somewhat further; however, the unemployment rate is little changed and a range of labor market indicators suggests that there remains significant underutilization of labor resources," the Fed said in its statement.

"It likely will be appropriate to maintain the current target range for the federal funds rate for a considerable time after the asset purchase program ends, especially if projected inflation continues to run below the Committee's 2 percent longer-run goal, and provided that longer-term inflation expectations remain well anchored."

Prior to Wednesday's policy statement, the Fed was buying $25 billion in Treasury debt and mortgage-backed securities a month to stimulate the economy, a monetary policy tool known as quantitative easing that aims to suppress long-term interest rates.

Expect that program to continue tapering in October and eventually close.

"Beginning in October, the Committee will add to its holdings of agency mortgage-backed securities at a pace of $5 billion per month rather than $10 billion per month, and will add to its holdings of longer-term Treasury securities at a pace of $10 billion per month rather than $15 billion per month," the Fed statement read.

Inflation rates are taking a little longer to approach Fed target zones, which should prompt the U.S. central bank to keep its benchmark interest rate, the fed funds rate, are present rock-bottom levels for some time.

"Inflation has been running below the Committee's longer-run objective. Longer-term inflation expectations have remained stable," the statement read.

Once the Fed determines the time has come to tighten policy, monetary authorities will use three tools: raising the fed funds rate, adjusting the interest rate it pays on excess reserve balances and finally, use reverse repos only when needed, the Fed said in an accompanying statement.

The dollar index, which rose earlier, gave back gains as investors digested the report and determined it to be somewhat dovish.

The dollar index, which tracks the performance of the greenback versus a basket of six other major currencies, was up 0.14% at 84.35.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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