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Fed leaves policy unchanged despite stronger growth

Published on Jul 31, 2014 2:39 AM

WASHINGTON (AFP) - The Federal Reserve on Wednesday stuck to its plan of holding its base interest rate near zero while steadily trimming its stimulus, despite a surprisingly strong second-quarter economic growth report.

The Fed as expected reduced its monthly bond purchases by US$10 billion, taking the program to US$25 billion a month, but said the low federal funds rate remains needed to support growth and improvement in the labour market.

In a statement at the end of a two-day policy meeting, the Federal Open Market Committee acknowledged that the economy shows "sufficient underlying strength" to support the recent gains in job creation and cutting unemployment. However, it also suggested continued disappointment with the state of the jobs market, saying that various data "suggests that there remains significant underutilisation of labour resources".

But in a significant shift that recognises the gains in the economy, the FOMC dropped its previous expression of concern over low inflation.

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