Federal Reserve officials left interest rates unchanged and saidthey still expect to raise borrowing costs at a “gradual” pacewhile watching to see how the global economy and markets impact theU.S. outlook.

The Federal Open Market Committee (FOMC) is “closely monitoringglobal economic and financial developments and is assessing theirimplications for the labor market and inflation, and for thebalance of risks to the outlook,” the central bank said in astatement Wednesday following a two-day meeting in Washington. TheFed omitted a line from the previous statement in December sayingthe risks to the outlook were “balanced.”

Since the Fedraised interest rates last month for the first time in almost adecade, turmoil in financial markets and a dimming of the outlookfor global growth have spurred investors to expect a slower rise inborrowing costs. The median projection of policy makers'forecasts in December called for four quarter-point rate increases in 2016; futures marketsindicated ahead of the FOMC statement that traders see just one ortwo hikes coming.

Chair Janet Yellen and her Fed colleagues, explainingtheir unanimous decision to leave the target range for theirbenchmark federal funds rate at 0.25 percent to 0.5 percent, saidthat recent information “suggests that labor market conditionsimproved further even as economic growth slowed late lastyear.”

Reiterating the interest-rate outlook from the Decemberstatement, the FOMC said Wednesday that it “expects that economicconditions will evolve in a manner that will warrant only gradualincreases in the federal funds rate.”

Household spending and business fixed investment have beengrowing at “moderate rates in recent months,” the FOMC said, afterlabeling such gains “solid” in the December statement.

The Fed stuck to its projection that the pace of price gainswill rise to 2 percent over the medium term but stated thatinflation “is expected to remain low in the near term, in partbecause of the further declines in energy prices.”

Market-based measures of inflation expectations have “declinedfurther,” while survey-based measures were “little changed” inrecent months, the FOMC said.

Yellen won't hold a post-meeting press conference and isn'tscheduled to speak publicly until she appears before the HouseFinancial Services Committee on Feb. 10 to deliver the Fed'ssemi-annual monetary policy report to Congress.

Since the FOMC met Dec. 15-16, the U.S. labor market showed moreof the improvement that encouraged the Fed to raise interest rates.Employers added 292,000 new jobs in December, bringing the 2015total to 2.65 million. Wages also showed tentative signs ofaccelerating, providing good news for a Fed hoping to see inflationmove closer to its 2 percent target this year.

Global stocks, however, have had their worst start to any year,dropping 8 percent, spookedby the slowing of China's economy and perhaps by a delayedresponse to the end of near-zero interest rates in the U.S.

Oil Price Decline Is Restraining Inflation

Oil prices have slid about 16 percent as of 11 a.m. New Yorktime, and the Bloomberg Dollar Spot Index has risen 1.4 percent.Such moves help to restrain inflation that policy makers see as toolow. The Fed's preferred price gauge rose 0.4 percent in Novemberfrom a year earlier. Core inflation, which excludes food andenergy, was 1.3 percent in November.

Though numerous private economists argue that China's directimpact on the U.S. economy is limited, and the drop in oil shouldultimately prove a stimulus to growth, investors had pushed outtheir expectations for the next Fed interest-rate increase.

The probability of an increase in March had fallen to as low as22 percent on Jan. 21 from a high of 53 percent on Dec. 30, basedon prices in the federal funds futures market.

New York Fed President William C. Dudley, the onlyregional Fed chief with a permanent FOMC vote, said Jan. 15 that“in terms of the economic outlook, the situation does not appear tohave changed much since the last FOMC meeting,” noting the strongerlabor market.

In contrast, James Bullard, president of the St. Louis Fed,sounded a more cautious note on Jan. 14 by saying the latestdecline in oil prices may delay the return of inflation to thecentral bank's 2 percent target.

The FOMC made a separate decision on Wednesday to revise its2012 statement on longer-run goals to say that the FOMC “would beconcerned if inflation were running persistently above or below”its 2 percent objective.

Bullard dissented from approving this change because thelanguage “is not sufficiently focused on expected future deviationsof inflation from the goal,” according to the Fed.

FOMC Voting Members

The regional Fed presidents who vote on the FOMC rotate eachJanuary. This year's new voters are Bullard, Boston's EricRosengren, Cleveland's Loretta Mester, and KansasCity's Esther George. They replaced JohnWilliams from San Francisco, Chicago's Charles Evans,Richmond's Jeffrey Lacker, and Atlanta's DennisLockhart.

Members of the Fed's Board of Governors hold permanent votes onthe FOMC.

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