Fed expected to keep rates unchanged, may signal year-end hike

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Mladen Rakic
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Mladen Rakic  
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thenews
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thenews  
The U.S. Federal Reserve is expected to keep interest rates unchanged on Wednesday amid tepid inflation and recent weak economic data, but could signal an increased likelihood of a hike by the end of the year.

The U.S. central bank raised its benchmark overnight interest rate to a range of 0.25 percent to 0.50 percent in December, the first hike in nearly a decade, but has held rates steady this year.

Economists polled by Reuters see a slim chance of a rate increase at the conclusion of the Fed's two-day policy meeting on Wednesday, with the majority expecting one at the meeting in December.

"The last thing the Fed wants is to disrupt financial markets with a big surprise," said Torsten Slok, chief international economist at Deutsche Bank (DE:DBKGn).

The Bank of Japan on Wednesday added a long-term interest rate target to its massive asset-buying program in an overhaul of its policy framework aimed at accelerating achievement of its 2 percent inflation target.

The BOJ said it would continue to buy long-term government bonds, but abandoned its base money target and instead set a "yield curve control" under which it will buy long-term government bonds to keep 10-year bond yields at current levels around zero percent.

The Fed's rate-setting committee will release its policy statement at 2 p.m. EDT (1800 GMT). Fed Chair Janet Yellen is scheduled to hold her quarterly press conference half an hour later.

The 17 Fed policymakers will have to balance a strong labor market, marked by an unemployment rate of 4.9 percent and job gains that are outpacing population growth, with inflation that is still well below the central bank's 2 percent target and weak August readings for manufacturing and service industry activity.


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