Washington (AP) - The Federal Reserve is keeping its key short-term interest rate at a record low in light of a weak global economy, slower U.S. hiring and subpar inflation. But it signalled the possibility of a rate hike in December.
A statement the Fed issued Wednesday said it would monitor job growth and inflation to determine "whether it will be appropriate to raise the target range" for its benchmark rate at its next meeting.
It marked the first time in seven years of record-low rates that the central bank has explicitly raised the possibility that it could raise its key rate from near zero at its next meeting.
In a further sign that a hike could occur in December, the Fed's policymakers sounded less gloomy about international economic pressures. They removed a sentence from their September statement that had warned of global weakness stemming from a sharper-than-expected slowdown in China.
"The Fed sent its clearest signal yet that, pending decent data, it has the December meeting in its sights for the first rate hike," said Michael Feroli, an economist at JPMorgan Chase and a former Fed staffer.
Stocks initially gave up some of their early gains after the Fed's announcement but then surged at the end of trading. The Dow Jones industrial average closed up nearly 200 points, or more than 1 percent.
Bond yields rose as traders anticipated higher U.S. rates. The yield on the 10-year Treasury note rose to 2.10 percent from 2.04 percent late Tuesday.
Ian Shepherdson, chief economist at Pantheon Macroeconomics, said he expects a December rate increase if the job reports for October and November improve over September, when hiring slowed.
"Some combination of payrolls, unemployment and wages signaling continued improvement will be enough," Shepherdson wrote in a note to clients.
Still, the Fed noted that the economy is expanding only modestly. And in a nod to recent weaker data, the policymakers expressed some concern about the pace of hiring.
While many Fed officials have signaled a desire to raise rates before year's end, some tepid economic reports in recent weeks had led some analysts to predict no hike until 2016.
The Fed's statement Wednesday was approved on a 9-1 vote, with Jeffrey Lacker, president of the Fed's Richmond regional bank, dissenting. As he had in September, Lacker favored a quarter-point rate increase.
The Fed has kept the target for its benchmark funds rate at a record low in a range of zero to 0.25 percent since December 2008. After the September meeting, Yellen noted that 13 of 17 Fed officials expected the first rate hike to occur this year. But some economic reports since then have been lackluster, including the slowdown in job growth last month.
Some of the U.S. weakness has occurred because of a global slump, led by China, that's inflicted wide-ranging consequences. U.S. job growth has flagged. Wages and inflation are subpar. Investors are nervous. And manufacturing is being hurt by a stronger dollar, which has made U.S. goods pricier overseas.
On the other hand, the Fed said in its statement Wednesday that consumer spending and business investment have been rising "at solid rates" and that the housing market has improved further.
The Fed cut its benchmark rate to near zero during the Great Recession to encourage borrowing and spending to boost a weak economy. Since then, hiring has significantly strengthened, and unemployment has fallen to a seven-year low of 5.1 percent.