Fed holds rates steady, sees two small hikes by end of year

THE FEDERAL RESERVE kept interest rates unchanged on Wednesday but signalled in new economic projections that borrowing costs will likely rise by another half of a percentage point by the end of this year as the US central bank reacted to a stronger-than-expected economy and a slower decline in inflation.

- HOWARD SCHNEIDER & MICHAEL S DERBY

In an effort to balance risks to the economy with a still unresolved fight to control inflation, "holding the target (interest rate) range steady at this meeting allows the committee to assess additional information and its implications for monetary policy," the rate-setting Federal Open Market Committee said in a unanimous policy statement issued at the end of its latest two-day meeting.

Further rate increases would "take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments," it said.