The Federal Open Market Committee (FOMC), the Fed's policy-making body, also repeated its view from its previous statement in September that the U.S. labour market had continued to improve and economic growth had picked up from the "modest pace" seen in the first half of the year.
But the FOMC also acknowledged that "inflation has increased somewhat," a shift in tone from its previous policy statement when it it merely noted that inflation continued to run below its longer-run objective of 2.0 percent.
U.S. consumer price inflation rate rose to 1.5 percent in September from 1.1 percent in August, with core inflation easing slightly to 2.2 percent from 2.3 percent.
The members of the FOMC were once again split, with Esther George and Loretta Mester voting for a quarter-point rate hike while the other eight members voted to maintain rates.
George, president of the Kansas City Fed, already voted to raise rates in March and April but then switched her vote to keep the rate in June.
In July George then again voted to raise rates and repeated this stance in September, when she was also joined by Mester and Eric Rosengren.
U.S. Gross Domestic Product grew by a better-than-expected annualized rate of 2.9 percent in the third quarter, or a year-on-year rate of 1.5 percent, in the third quarter compared with an annual rate of 1.3 percent in the second quarter, providing further evidence the economy is on solid footing.
Exports along with stronger inventory building were the main contributors to third quarter growth.
But despite accelerating growth, economists are still looking for average growth this year of around 1.6 percent, down from 2.6 percent in 2015, due to a weak first quarter.
The U.S. jobs market is also improving jobs market, with U.S. employers in September hiring 156,000 workers.
The U.S. Federal Reserve issued the following statement:
"Information received since the Federal Open Market Committee met in September indicates that the labor market has continued to strengthen and growth of economic activity has picked up from the modest pace seen in the first half of this year. Although the unemployment rate is little changed in recent months, job gains have been solid. Household spending has been rising moderately but business fixed investment has remained soft. Inflation has increased somewhat since earlier this year but is still 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 have moved up but remain low; 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 expects that, with gradual adjustments in the stance of monetary policy, economic activity will expand at a moderate pace and labor market conditions will strengthen somewhat further. Inflation is expected 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. Near-term risks to the economic outlook appear roughly balanced. 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 Committee judges that the case for an increase in the federal funds rate has continued to strengthen but decided, for the time being, to wait for some further evidence of continued progress toward its objectives. 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; Jerome H. Powell; Eric Rosengren; and Daniel K. Tarullo. Voting against the action were: Esther L. George and Loretta J. Mester, each of whom preferred at this meeting to raise the target range for the federal funds rate to 1/2 to 3/4 percent."