http://www.nytimes.com/2015/09/18/bu...unchanged.html

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WASHINGTON — The Federal Reserve announced on Thursday that it would keep interest rates near zero as officials assessed the impact of tighter financial conditions and slower global growth on the domestic economy.

The Fed’s decision, widely expected by investors, showed that officials still lacked confidence in the strength of the domestic economy even as the central bank has entered its eighth year of overwhelming efforts to stimulate growth.

“Recent global economic and financial developments may restrain economic activity somewhat and are likely to put further downward pressure on inflation in the near term,” the Fed said in a statement after a two-day meeting of its policy-making committee, the Federal Open Market Committee.

The Fed still plans to raise rates this year, according to new economic projections the Fed also published on Thursday. Thirteen of the 17 members of the committee predicted the Fed would raise rates by at least 0.25 percentage points, and six predicted an even larger increase.

The committee is scheduled to meet in October and December.

One official, Jeffrey Lacker, president of the Federal Reserve Bank of Richmond, voted to raise rates at the September meeting, the first such dissent at a meeting this year.

Fed officials are convinced labor market conditions have nearly returned to normal. In the new round of economic projections, officials estimated the unemployment rate would stop falling when it reached 4.8 percent, just slightly below the August level of 5.1 percent.

“The labor market continues to improve, with solid job gains and declining unemployment,” the statement said.

But the share of Americans with jobs remains well below the level before the Great Recession, and the Fed’s projections imply that some of that decline is probably permanent.
Officials also remain confident that inflation will rebound, although perhaps a little more slowly.

Even so, Fed officials predicted the Fed’s benchmark rate would rise gradually, reaching 2.6 percent by the end of 2017. In June they predicted the rate would reach 2.9 percent by then.

Officials also expect the rate to reach a new plateau of about 3.5 percent, less than the June prediction of 3.8 percent and significantly below the level the Fed once regarded as normal. If rates remain at that level, it would limit the Fed’s ability to respond to economic downturns.

For much of the summer, Fed officials appeared ready to start raising the central bank’s benchmark interest rate at this meeting in September. The unemployment rate fell to 5.1 percent in August, and officials predicted continued job growth and a gradual rebound in inflation.

But officials have expressed concern that the recent stock market downturn may be a sign of weakness in the domestic economy. Moreover, Fed officials said that they saw little risk in postponing liftoff for at least a few more weeks.

Late last month, in the midst of the worst market turmoil, William C. Dudley, the president of the Federal Reserve Bank of New York, said the case for raising rates in September had become “less compelling.”

The policy-making committee has scheduled meetings in October and December, and officials have said that they still hope to start raising rates this year.

The Fed already has held its benchmark rate near zero much longer than its own officials had anticipated. The Fed announced in 2012 that it would keep rates near zero until the unemployment rate fell below 6.5 percent. That threshold was crossed in April 2014. Last winter, when the Fed ended its yearslong bond-buying campaign, which served as an extra economic stimulus, officials pointed to June as the most likely moment for liftoff.

Liberal activists and economists pressed hard for the latest postponement, arguing that the economic recovery remains incomplete. The share of adults with jobs, for example, remains far below its precrisis level, suggesting that a significant share of the population has stopped trying to find employment.

Representative John Conyers, a Michigan Democrat, introduced legislation on Thursday directing the Fed to push the unemployment rate below 4 percent.

The tightening of financial conditions in recent weeks also has done some of the work of a rate increase, allaying concerns about excessive speculation. And the persistence of sluggish inflation continues to frustrate the Fed’s predictions.

Yet Fed officials have made clear they are not inclined to wait much longer. Monetary policy exerts a gradual influence on economic conditions, and its major effects often take many months to kick in. Stanley Fischer, the Fed’s vice chairman, warned in late August that officials would not be able to postpone a decision until all of their doubts were resolved.

“When the case is overwhelming,” he said, “if you wait that long, then you’ve waited too long.”