Sept. 20 (UPI) -- The Federal Reserve voted Wednesday to keep key interest rates unchanged, but plans to reduce its U.S. Treasury bonds holdings next month.
The central bank announced its decision Wednesday afternoon after two days of meeting in Washington -- opting to keep the short-term target range at 1-1.25 percent. At its previous meeting in July, it also declined to raise its benchmark interest rate.
The Fed has raised the federal funds rate four times since December 2015, when rates had sat near zero for several years following the financial crisis.
Eleven of 16 Fed officials, though, see the "appropriate" level for the federal funds rate between 1.25 percent and 1.50 percent by the end of this year. They said they expect three more rate changes next year, two in 2019 and one in 2020.
Interest rates have stayed low despite a shallow unemployment rate of 4.4 percent in August and inflation down to 1.4 percent. An inflation rate of 2 percent is the Fed's general goal, and a benchmark for gauging economic health to raise rates.
"In view of realized and expected labor market conditions and inflation, the Committee decided to maintain the target range for the federal funds rate at 1 to 1-1/4 percent," the Fed said in a statement. "The stance of monetary policy remains accommodative, thereby supporting some further strengthening in labor market conditions and a sustained return to 2 percent inflation."
In its statement, the committee said economy is being affected by Hurricanes Harvey, Ira and Maria.
"Storm-related disruptions and rebuilding will affect economic activity in the near term, but past experience suggests that the storms are unlikely to materially alter the course of the national economy over the medium term," the Fed said.
Before the Fed's announcement, the Dow Jones Industrial Average was up 20 points, with the expectation the rate would not change. Thirty-minutes after the announcement, the DJIA was down 31.71 points but it closed up 41.79 points to 22,412.59, another all-time high.
According to the CME Group's FedWatch tool, investors now see a 56 percent chance of a rate increase by the end of December, CNBC reported.
"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," the Fed said. "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."
The Fed is expecting increases.
"The Committee expects that economic conditions will evolve in a manner that will warrant 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," the Fed said. "However, the actual path of the federal funds rate will depend on the economic outlook as informed by incoming data."
In October, the committee will start unwinding its $4.5 trillion balance sheet by cutting up to $10 billion each month from maturing securities it reinvests.
In response to the Great Recession in 2008, the Fed built up its portfolio of government and mortgage-backed bonds.
Appearing before Congressional committees in July, Fed Chair Yellen said she plans to keep raising its benchmark interest rate and to reduce its investment holdings.
During a news conference Wednesday, Yellen declined to say whether she would like to be nominated for a second term by President Donald Trump, whom she met with several months ago. Her first termends Feb. 8.
"I have said that I intend to serve out my term as chair," she said.
Earlier this month, the bank's second in-command, Stanley Fischer, announced he will depart on Oct. 13.