Federal Reserve officials raised their assessment of the labor market and the economy, keeping the central bank on track to raise interest rates this year for the first time in almost a decade.
“Economic activity has been expanding moderately,” the Federal Open Market Committee said in a statement Wednesday in Washington. “The pace of job gains picked up,” it said, and “underutilization of labor resources diminished somewhat” since their last meeting in April.
Separately, Fed officials maintained their forecast for the benchmark interest rate at the end of 2015, while lowering it for next year.
Policy makers predicted the rate will rise to 0.625 percent this year, according to their median estimate. That implies two quarter-point increases. Next year, they expect the rate to climb to 1.625 percent, lower than a March forecast of 1.875 percent.
A rebound in job growth is giving Fed officials reason to look beyond a first-quarter economic slowdown as they consider when to tighten policy. At the same time, inflation remains below their target, and central bankers say the timing of a rate increase depends on how economic data unfold.
“The committee expects inflation to rise gradually toward 2 percent over the medium term as the labor market improves further and the transitory effects of earlier declines in energy and import prices dissipate,” according to the statement.
The Fed repeated it will raise rates when it sees further labor-market improvement and is “reasonably confident” inflation will move back to its 2 percent goal over the medium term.
Officials held the benchmark overnight fed funds rate in a zero to 0.25 percent range, where it has been since December 2008, during the worst recession since the Great Depression.
The decision was unanimous.
Fed Chair Janet Yellen, who has said she expects the Fed to raise rates in 2015, will hold a press conference at 2:30 p.m. in Washington.
After a slump in March, jobs growth has rebounded. Employers added 280,000 positions in May, the most in five months. Average hourly earnings accelerated to a 2.3 percent year-over-year pace, the fastest since August 2013.
Further wage and job gains could give Fed officials confidence that inflation, which has lingered below their 2 percent goal for three years, is likely to move higher.
“If there’s continued improvement in the labor market, they’re going to assume that inflation is coming,” said Drew Matus, deputy chief U.S. economist for UBS Securities LLC in New York.
Growth, too, is poised to pick up as consumers start spending a windfall from lower gasoline prices.
The economy is likely to expand at a 2.5 percent annual pace in the second quarter after shrinking 0.7 percent in the previous three months, according to economists surveyed by Bloomberg.
Fed officials have said the contraction was caused in large part by temporary forces, including unusually severe winter weather and a slump in energy-industry investment brought on by lower oil prices.
Investors have had to balance the brightening U.S. data with risks from abroad, such as a slowdown in China and the danger of a Greek default.
The yield on the 10-year U.S. Treasury note has risen 27 basis points since the Fed last met on April 29 to 2.31 percent late Tuesday in New York. Over the same period, the Standard & Poor’s 500 Index of U.S. stocks has declined 0.5 percent and remains near a record high.
Today’s meeting marked the first time since 2008 that policy makers entered an FOMC session without having clearly signaled beforehand that a rate move was unlikely.
Yellen has gradually dropped explicit forward guidance from FOMC statements over the past six months, saying rate decisions would be made month-to-month and be “data dependent.”
Expectations for a change this month were low. In a June 5- 9 Bloomberg survey, 53 economists assigned a 1 percent chance to a June liftoff. September was given 50 percent odds.