Fed keeps interest rates unchanged as expected

The Federal Reserve decided on Wednesday to keep interest rates unchanged at 0.25%, as most analysts' expected, and left the door open to an increase in December.

The US central bank downplayed global economic headwinds in its statement on the decision, which was made after a two-day policy meeting, saying that it was monitoring developments abroad.

The Fed softened its tone compared to the last meeting as it did not repeat its warning that global risks would have a likely impact on the US economy.

The Federal Market Open Committee instead cited a slowdown in US job growth had slowed and a steady unemployment rate for its reasoning behind holding fire on raising interest rates. Policymakers added that the US economy has been expanding at a moderate pace.

"The committee continues to see the risks to the outlook for economic activity and the labour market as nearly balanced," the Fed said in its statement.

The Fed said it sees inflation remaining near its recent low level in the near term before rising gradually toward its 2% target over the medium term as the "labour market improves further and the transitory effects of declines in energy and import prices dissipate". Annual inflation in the US dropped to 0% in September from 0.2% in August, dragged down by cheap fuel.

Jeffrey Lacker was the only FOMC member who voted to raise the target range for the federal funds rate by 25 basis points.

Most Fed officials have said they expect an increase in interest rates by the end of the year. However, a slate of recent weak economic data has pushed back analysts' forecasts for a hike into 2016.

"The Federal Reserve seems to have talked itself into a corner regarding the timing of the first rate hike," said Alfonso Esparza, senior currency analyst at Oanda.

"Communication is at the heart of the problem. Ever since the Taper Tantrum, which was spearheaded by Janet Yellen, the American central bank has struggled to communicate clearly its intentions to the market. There was almost no transition as the Fed abandoned forward guidance and started using data dependency as a way to set expectations."