The Fed, the central bank of the United States, said the rise in jobs had diminished even as the unemployment rate had fallen, a reference to a fall in the unemployment rate to 4.7 percent in May but the creation of only 38,000 new jobs, the weakest in almost six years.
Reflecting the more cautious stance of the Fed, all 10 members of the Federal Open Market Committee (FOMC) - the Fed's policy-making body, voted to retain the rate. At its two previous meetings, Esther George, president of the Kansas City Fed, had voted to raise the rate.
Illustrating the global phenomenon of low interest rates, the Fed also lowered its forecast for the longer run projection of the fed funds rate to 3.0 percent from 3.3 percent in March.
In an update to its economic projections, the Fed left its forecast for the average fed funds rate this year at 0.9 percent, implying two further rate hikes. But for 2017 the Fed trimmed the forecast to 1.6 percent from the March forecast of 1.9 percent, implying that it may only raise rates twice next year compared with three times previously forecast.
For 2018 the fed funds rate was projected to average 2.4 percent, down from the previous forecast of 3.0 percent, implying three hikes in 2018 compared with the March forecast of four hikes.
The Fed reiterated its guidance that is expects economic conditions to evolve in such a manner that "will warrant only gradual increases in the federal funds rate," and the rate is likely to remain, for some time, below levels that are expected to prevail in the long run.
The Fed's projections for economic growth this year was lowered to an average of 2.0 percent from March's forecast of 2.2 percent while the 2017 forecast was cut to 2.0 percent from 2.1 percent and the 2018 forecast was unchanged at 2.0 percent.
The forecast for personal consumption expenditure inflation - the Fed's preferred gauge - was raised slightly to 1.4 percent this year from 1.2 percent but retained at 1.9 percent this year and 2.0 percent in 2018, the Fed's target.
Consumer price inflation in the U.S. rose to 1.1 percent in April from 0.9 percent in March while the annual growth rate of Gross Domestic Product was steady at 2.0 percent in the first quarter from the fourth quarter.
The FOMC, which has a dual objective of maximum employment and stable prices, maintained its forecast for unemployment to average 4.7 percent this year and then fall further to 4.6 percent in 2017. For 2018 the Fed raised the jobless forecast to 4.6 percent from 4.5 percent.
The Board of Governors of the Federal Reserve System issued the following statement:
"Information received since the Federal Open Market Committee met in April indicates that the pace of improvement in the labor market has slowed while growth in economic activity appears to have picked up. Although the unemployment rate has declined, job gains have diminished. Growth in household spending has strengthened. Since the beginning of the year, the housing sector has continued to improve and the drag from net exports appears to have lessened, but business fixed investment has been soft. Inflation has continued to run below the Committee's 2 percent longer-run objective, partly reflecting earlier declines in energy prices and in prices of non-energy imports. Market-based measures of inflation compensation declined; most 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 strengthen. Inflation is expected to remain low in the near term, in part because of earlier declines in energy prices, but to rise to 2 percent over the medium term as the transitory effects of past declines in energy and import prices dissipate and the labor market strengthens further. The Committee continues to closely monitor inflation indicators and global economic and financial developments.
Against this backdrop, 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."