The statement from the Fed's policy-making body, the Federal Open Market Committee (FOMC), also reiterated its view that the U.S. economic activity "has been expanding moderately" in recent months and the underutilization of labour resources had diminished.
But compared with June, the FOMC appeared slightly more confident about the labor market, saying it had "continued to improve," while last month it merely noted that the "pace of job gains picked up while the unemployment rate remained steady."
The U.S. unemployment rate fell to 5.3 percent in June from 5.5 percent in May and 5.4 percent in April, close to what some officials consider full employment.
"The Committee continues to see the risks to the outlook for economic activity and the labor market as nearly balanced," the FOMC said, repeating its June statement.
The Fed also repeated that inflation continues to run below its objective and is expected to remain near its recent level in the near term. However, the FOMC still expects inflation to rise gradually as the labor market improves and the temporary effects of the fall in energy prices and import prices dissipate.
The headline inflation rate rose slightly to 0.1 percent in June from zero in May, the first time it rose above zero or minus in six months.
U.S. Gross Domestic Product contracted by 0.2 percent in the first quarter from the fourth quarter but on an annual basis GDP expanded by 2.9 percent, up from 2.4 percent in the fourth quarter and the strongest rate since the fourth quarter of 2013.
The Fed has maintained its fed funds rate at the current level since December 2008.
The Federal Reserve issued the following statement:
"Information received since the Federal Open Market Committee met in June indicates that economic activity has been expanding moderately in recent months. Growth in household spending has been moderate and the housing sector has shown additional improvement; however, business fixed investment and net exports stayed soft. The labor market continued to improve, with solid job gains and declining unemployment. On balance, a range of labor market indicators suggests that underutilization of labor resources has diminished since early this year. Inflation continued to run below the Committee's longer-run objective, partly reflecting earlier declines in energy prices and decreasing prices of non-energy imports. Market-based measures of inflation compensation remain low; survey‑based measures of longer-term inflation expectations have remained stable.
Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee expects that, with appropriate policy accommodation, economic activity will expand at a moderate pace, with labor market indicators continuing to move toward levels the Committee judges consistent with its dual mandate. The Committee continues to see the risks to the outlook for economic activity and the labor market as nearly balanced. Inflation is anticipated to remain near its recent low level in the near term, but 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. The Committee continues to monitor inflation developments closely.
To support continued progress toward maximum employment and price stability, the Committee today reaffirmed its view that the current 0 to 1/4 percent target range for the federal funds rate remains appropriate. In determining how long to maintain this target range, the Committee will assess progress--both realized and expected--toward 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. The Committee anticipates that it will be appropriate to raise the target range for the federal funds rate when it has seen some further improvement in the labor market and is reasonably confident that inflation will move back to its 2 percent objective over the medium term.
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. This policy, by keeping the Committee's holdings of longer-term securities at sizable levels, should help maintain accommodative financial conditions.
When the Committee decides to begin to remove policy accommodation, it will take a balanced approach consistent with its longer-run goals of maximum employment and inflation of 2 percent. The Committee currently anticipates that, even after employment and inflation are near mandate-consistent levels, economic conditions may, for some time, warrant keeping the target federal funds rate below levels the Committee views as normal in the longer run.
Voting for the FOMC monetary policy action were: Janet L. Yellen, Chair; William C. Dudley, Vice Chairman; Lael Brainard; Charles L. Evans; Stanley Fischer; Jeffrey M. Lacker; Dennis P. Lockhart; Jerome H. Powell; Daniel K. Tarullo; and John C. Williams."