Federal Reserve policy makers left open the door to raisinginterest rates in June by nodding to improvement in globalfinancial markets and downplaying recent weakness in the U.S.economy.

The Federal Open Market Committee (FOMC) omitted previouslanguage that “global economic and financial developments continueto pose risks,” instead saying officials will “closely monitor” theworld situation, according to a statement released Wednesdayfollowing a two-day meeting in Washington. The Fed left itsbenchmark interest rate unchanged.

“Their removal of the line on risks is pretty significant,” saidCarl Tannenbaum, chief economist at Northern Trust Corp. in Chicagoand a former Fed official. “That might reflect increased comfort onthe committee that global influences appear more manageable.”

The yield on 10-year U.S. Treasury bonds dropped by about 0.06percentage point while U.S. stocks fluctuated with the dollar. FedChair Janet Yellen wasn't scheduled to hold a post-meeting pressconference.

The Fed's assessment of how economic conditions have evolvedsince the committee last met in March was mixed. Officialsacknowledged recent weaknesses while adding dashes of optimism overwhat's ahead for the labor market and consumer spending.

“Labor market conditions have improved further even as growth ineconomic activity appears to have slowed,” the FOMC said. “Growthin household spending has moderated, although households' realincome has risen at a solid rate and consumer sentiment remainshigh.”

The committee reiterated that it will probably raise rates at a“gradual” pace. The central bank's next meeting is June 14-15.

Extending a hold since raising interest rates in December fromclose to zero, the committee said that inflation has continued torun below the Fed's 2 percent target, and market-based measures ofinflation compensation remain low.

Risk Assessment

For the third straight meeting, officials omitted an assessmentof whether the risks to the outlook were balanced. After saying inDecember that risks were “balanced,” policy makers removed theso-called “balance of risks” in January amid financial-marketturmoil.

Minutes from the March meeting showed that “many” officials sawthe global situation posing downside risks to the U.S. economy.

Esther George, president of the Kansas City Fed, dissented forthe second meeting in a row, repeating her preference for aquarter-point increase instead of voting to leave the federal fundsrate's target range at 0.25 percent to 0.5 percent.

Spurred largely by robust jobs growth, Yellenclosed 2015 by leading the FOMC to its first rate rise in almost adecade and declaring her expectation for a “gradual” pace ofadditional hikes this year.

Global Environment

Despite continued strength in the labor market, the committeebalked at another move in January and again in March amid worries that weak global growth andturbulence in financial markets might harm the U.S. economy.Markets have since calmed, and inflation has showed signs of risingcloser to target, but growth in the U.S. has slowed.

“Since the beginning of the year, the housing sector hasimproved further, but business fixed investment and net exportshave been soft,” the FOMC said. The committee reiterated that “arange of recent indicators, including strong job gains, points toadditional strengthening of the labor market.”

GDPNow, the Atlanta Fed's measure of economic growth, estimatedfirst-quarter expansion at an annual rate of 0.6 percent, as ofWednesday. Growth in the last quarter of 2015 was also weak, at 1.4percent on an annualized basis, according to the CommerceDepartment, which releases preliminary first-quarter figuresThursday for gross domestic product.

In quarterly forecasts submitted in March, the median projectionfrom FOMC members was for two quarter-point interest-rate increasesin 2016, down from the four projected by the median forecast inDecember. In contrast, prices for federal funds futures contractsbefore the FOMC statement implied that investors expected just onemove this year, and not until September at the earliest.

Some Fed officials have worked to lift market expectations inrecent weeks. Boston Fed President Eric Rosengren, an FOMC voterthis year, said April 18 that raising rates at the pace predictedby markets would risk pushing unemployment too low and inflationtoo high. Rosengren is known for advocating a slower approach torate hikes than most of his policy-making colleagues.

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