On Dec. 16 last year the Fed raised its rate by 25 basis points, wrapping up a seven-year period of near zero rates to help the economy recover from the global financial crises.
In its December forecast, the Fed pencilled in four rate hikes in 2016 but financial markets and economists expect this projection to be scaled back in March in light of the recent falls in energy prices, which slows inflation, falling growth in emerging markets and financial market volatility.
In its statement, the Fed's policy-making body, the Federal Open Market Committee (FOMC) said it voted unanimously to keep the rate steady today, and repeated that it still considers its policy stance to be accommodative, supporting further improvements in the labor market and a return to its goal of 2.0 percent inflation.
"Given the economic outlook, the Committee decided to maintain the target range for the federal funds at 1/4 to 1/2 percent," the FOMC said.
The Fed acknowledged that the further fall in energy prices since December would lead to lower inflation in the near term, though it is still optimistic that it will rise to 2 percent in the medium term as the temporary effects of lower energy prices and import prices dissipate.
In December the Fed forecast that inflation, as measured by its preferred index for personal consumption (PCE), would rise to 1.6 percent by the end of 2016.
Headline inflation in the U.S. rose further to a year-high annual rate of 0.7 percent in December though the PCE only rose by 0.3 percent in November from October.
But the Fed also noted that U.S. labor markets had continued to improve despite slowing economic growth late last year and household spending and business investment had been rising at "moderate rates" in recent months, and the housing sector had improved.
The U.S. unemployment rate was steady for a third month in a row at 5.0 percent in December though employee added a robust 292,000 jobs and the number of employed rose further to almost 150 million people.
But reflecting weaker growth internationally and the impact of the strong U.S. dollar, the Fed noted that exports had been soft and inventory investment had slowed.
In a separate statement, the FOMC revised its "Statement on Longer-Run Goals and Monetary Policy Strategy" - a statement that was originally adopted in January 2012, to clarify that it views its inflation objective as symmetric.
The FOMC's statement on its inflation objective now reads that the "Committee would be concerned if inflation were running persistently above or below" its 2 percent objective.
The Board of Governors of the Federal Reserve System issued the following statement:
"Information received since the Federal Open Market Committee met in December suggests that labor market conditions improved further even as economic growth slowed late last year. Household spending and business fixed investment have been increasing at moderate rates in recent months, and the housing sector has improved further; however, net exports have been soft and inventory investment slowed. A range of recent labor market indicators, including strong job gains, points to some additional decline in underutilization of labor resources. Inflation has continued to run below the Committee's 2 percent longer-run objective, partly reflecting declines in energy prices and in prices of non-energy imports. Market-based measures of inflation compensation declined further; survey-based measures of longer-term inflation expectations are little changed, on balance, in recent months.
Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee currently expects that, with gradual adjustments in the stance of monetary policy, economic activity will expand at a moderate pace and labor market indicators will continue to strengthen. Inflation is expected to remain low in the near term, in part because of the further declines in energy prices, but to rise to 2 percent over the medium term as the transitory effects of declines in energy and import prices dissipate and the labor market strengthens further. The Committee is closely monitoring global economic and financial developments and is assessing their implications for the labor market and inflation, and for the balance of risks to the outlook.
Given the economic outlook, the Committee decided to maintain the target range for the federal funds rate at 1/4 to 1/2 percent. The stance of monetary policy remains accommodative, thereby supporting further improvement in labor market conditions and a return to 2 percent inflation.
In determining the timing and size of future adjustments to the target range for the federal funds rate, the Committee will assess realized and expected economic conditions relative to its objectives of maximum employment and 2 percent inflation. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments. In light of the current shortfall of inflation from 2 percent, the Committee will carefully monitor actual and expected progress toward its inflation goal. The Committee expects that economic conditions will evolve in a manner that will warrant only gradual increases in the federal funds rate; the federal funds rate is likely to remain, for some time, below levels that are expected to prevail in the longer run. However, the actual path of the federal funds rate will depend on the economic outlook as informed by incoming data.
The Committee is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction, and it anticipates doing so until normalization of the level of the federal funds rate is well under way. This policy, by keeping the Committee's holdings of longer-term securities at sizable levels, should help maintain accommodative financial conditions.
Voting for the FOMC monetary policy action were: Janet L. Yellen, Chair; William C. Dudley, Vice Chairman; Lael Brainard; James Bullard; Stanley Fischer; Esther L. George; Loretta J. Mester; Jerome H. Powell; Eric Rosengren; and Daniel K. Tarullo."
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