Fed holds interest rates steady as Brexit, payrolls muddy view

Last Updated Jun 15, 2016 3:50 PM EDT

The Federal Reserve on Wednesday held interest rates near record lows, as expected, with the central bank delaying another step towards normalizing monetary policy in the face of slowing job gains and a possible British exit from the European Union.

The Fed kept its target range for overnight lending rates between banks at between 0.25 percent to 0.50 percent, keeping on ice an effort to start raising borrowing costs that began in late 2015.

"Brexit, the upcoming U.K. decision on is something we discussed, and it is fair to say it was one of the factors that factored into today's decision," Fed Chair Janet Yellen told a nationally televised news conference. "It is a decision that could have consequences for economic and financial conditions in global markets. It could have consequences in turn for the U.S."

"International uncertainties loom large here. We're also looking at prospects for economic growth and continued progress in the labor market," Yellen said when asked what it would take for the FOMC to hike rates twice before the end of the year.

The Fed now anticipates hiking interest rates more slowly in the years ahead than previously predicted.

The decision to postpone a rate hike was unanimous, with Esther George, president of the Federal Reserve Bank of Kansas City, agreeing with her colleagues after dissenting at the Fed's last meeting in April.

"The committee will feel free to move in the upcoming months if we feel it is appropriate," said Yellen in dismissing the idea that the upcoming presidential election would be a factor in the Fed's monetary policy. The central bank is focused on assessing the economic outlook "without taking politics into account," she said.

In a news release, the Federal Open Market Committee (FOMC) noted that since its April gathering, "the pace of improvement in the labor market has slowed while growth in economic activity appears to have picked up."

The Fed has made clear that it's looking to hike borrowing costs, with its stated strategy most recently derailed by the shockingly poor May jobs report, showing the economy added only 38,000 jobs in the month, the softest figure in nearly six years.

The Fed in December halted an unprecedented period of easy monetary policy by delivering its first interest rate hike since 2006, raising its key federal funds rate to 0.25 percent, up from at or near zero percent for the last seven years.

Wall Street initially took the Fed's latest decision in stride, but stocks erased gains and turned lower as the session close approached, with benchmark indexes lately off 0.2 percent.