Fed leaves interest rates unchanged, signals two hikes this year

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Fed leaves rates the same

WASHINGTON, June 15 (Reuters) - The Federal Reserve kept interest rates unchanged on Wednesday and signaled it still plans two rate increases this year, saying it expects the U.S. job market to strengthen after a recent slowdown.

The U.S. central bank, however, lowered its economic growth forecasts for 2016 and 2017 and indicated it would be less aggressive in tightening monetary policy after the end of this year.

SEE ALSO: 31 percent of Americans are struggling to get by financially

Fed policymakers gave no indication of when they might raise rates, though their projections leave the door open to an increase next month.

"The pace of improvement in the labor market has slowed," the Fed said in a statement. It added, however, that "economic activity will expand at a moderate pace and labor market indicators will strengthen" even with gradual rate increases.

Updated projections from Fed policymakers point to annual economic growth of only 2 percent for the foreseeable future, slightly lower than forecast at the March policy meeting.

Policymakers have been worried about potential weakness in the U.S. labor market and the possibility of financial turmoil if Britain votes next week to leave the European Union. The Fed statement on Wednesday made no reference to that vote.

"It's as dovish as the Fed can get without actually cutting rates. Even (Kansas City Fed President) Esther George withdrew her dissent. The path of rates is lower, which is a big dovish swing," said Brian Jacobsen, chief portfolio strategist at Wells Fargo Fund Management.

Financial markets all but priced out a rate increase this year after the Fed statement, and U.S. short-term interest rate futures contracts rose. U.S. stocks held on to their pre-meeting gains.

Fed Chair Janet Yellen is scheduled to hold a news conference at 2:30 p.m. EDT (1830 GMT).

NO DISSENTS

The Fed left its target range for overnight lending rates between banks at between 0.25 percent to 0.50 percent, keeping on hold a campaign to lift borrowing costs that started late last year.

It raised rates in December for the first time in nearly a decade and signaled four increases were likely in 2016. Concerns about a global economic slowdown and volatility in financial markets subsequently reduced that number to two.

Although worries about the health of the global economy have eased, a sharp slowdown in U.S. hiring in May was unsettling. More recent data have indicated that last month's jobs report may have been a blip.

The Fed statement said economic activity appeared to have picked up since April.

Economists polled by Reuters had seen virtually no chance that the Fed would raise rates on Wednesday. Most had expected it to do so in July or September on a view that the U.S. job market would bounce back and Britain's EU referendum would not lead to a financial meltdown.

There were no dissents in the Fed's rate decision on Wednesday. (Reporting by Jason Lange and Howard Schneider; Additional reporting by David Chance; Editing by Paul Simao)

RELATED: The Fed changed key interest rates for the first time in 2006 in December 2015
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Federal Reserve raises key interest rates for first time since 2006, Janet Yellen, markets react
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Federal Reserve raises key interest rates for first time since 2006, Janet Yellen, markets react
CHICAGO, IL - DECEMBER 16 : Traders in the Standard & Poor's 500 stock index options pit at the Chicago Board Options Exchange (CBOE) react after it was announced that they Federal Reserve would increase interest rates December 16, 2015 in Chicago, Illinois. The Federal Reserves raised the interest rates for the first time since 2006 by 0.25 percentage points. (Photo by Joshua Lott/Getty Images)
CHICAGO, IL - DECEMBER 16 : Traders in the Standard & Poor's 500 stock index options pit at the Chicago Board Options Exchange (CBOE) react after it was announced that they Federal Reserve would increase interest rates December 16, 2015 in Chicago, Illinois. The Federal Reserves raised the interest rates for the first time since 2006 by 0.25 percentage points. (Photo by Joshua Lott/Getty Images)
Traders work as Janet Yellen, chair of the U.S. Federal Reserve, is seen speaking on a television screen on the floor of the New York Stock Exchange (NYSE) in New York, U.S., on Wednesday, Dec. 16, 2015. The Federal Reserve raised interest rates for the first time in almost a decade in a widely telegraphed move while signaling that the pace of subsequent increases will be 'gradual' and in line with previous projections. Photographer: Michael Nagle/Bloomberg via Getty Images
CHICAGO, IL - DECEMBER 16 : Traders in the Standard & Poor's 500 stock index options pit at the Chicago Board Options Exchange (CBOE) react to the Federal Reserves interest rate hike December 16, 2015 in Chicago, Illinois. The Federal Reserves raised the interest rates for the first time since 2006 by 0.25 percentage points. (Photo by Joshua Lott/Getty Images)
CHICAGO, IL - DECEMBER 16 : Traders in the Standard & Poor's 500 stock index options pit at the Chicago Board Options Exchange (CBOE) react to the Federal Reserves interest rate hike December 16, 2015 in Chicago, Illinois. The Federal Reserves raised the interest rates for the first time since 2006 by 0.25 percentage points. (Photo by Joshua Lott/Getty Images)
CHICAGO, IL - DECEMBER 16 : Traders in the Standard & Poor's 500 stock index options pit at the Chicago Board Options Exchange (CBOE) react to the Federal Reserves interest rate hike December 16, 2015 in Chicago, Illinois. The Federal Reserves raised the interest rates for the first time since 2006 by 0.25 percentage points. (Photo by Joshua Lott/Getty Images)
Pedestrians walk past the New York Stock Exchange (NYSE) in New York, U.S., on Wednesday, Dec. 16, 2015. The Federal Reserve raised interest rates for the first time in almost a decade in a widely telegraphed move while signaling that the pace of subsequent increases will be 'gradual' and in line with previous projections. Photographer: Michael Nagle/Bloomberg via Getty Images
WASHINGTON, USA - DECEMBER 16: Federal Reserve Chairwoman Janet Yellen holds a news conference after the Federal Reserve made the announcement that it was raising its interest rate in Washington, USA on December 16, 2015. The raising of rates a quarter point comes seven years after they dropped the rates to near zero during the financial crisis. (Photo by Samuel Corum/Anadolu Agency/Getty Images)
Janet Yellen, chair of the U.S. Federal Reserve, speaks during a news conference following a Federal Open Market Committee (FOMC) meeting in Washington, D.C., U.S., on Wednesday, Dec. 16, 2015. The Federal Reserve raised interest rates for the first time in almost a decade in a widely telegraphed move while signaling that the pace of subsequent increases will be gradual and in line with previous projections. Photographer: Andrew Harrer/Bloomberg via Getty Images
Federal Reserve Chair Janet Yellen speaks during a press conference following the announcement of an historic rate increase, the first since 2006, in Washington, DC, December 16, 2015. The Federal Reserve announced Wednesday its first interest rate increase in more than nine years in a landmark move signaling the US has finally moved beyond the 2008 crisis. The Fed raised the benchmark federal funds rate, locked near zero since the Great Recession, by a quarter point to 0.25-0.50 percent, saying the economy is growing at a moderate pace and should accelerate next year. AFP PHOTO / SAUL LOEB / AFP / SAUL LOEB (Photo credit should read SAUL LOEB/AFP/Getty Images)
WASHINGTON, DC - DECEMBER 16: Federal Reserve Bank Chair Janet Yellen holds a news conference where she announced that the Fed will raise its benchmark interest rate for the first time since 2008 at the bank's Wilson Conference Center December 16, 2015 in Washington, DC. With unemployment at 5-percent and the economy showing signs of strength, the Fed raised the interest rate a quarter of a percentage point and many experts believe the interest rate on short-term loans could go as high as one percent by the end of 2016. (Photo by Chip Somodevilla/Getty Images)
NEW YORK, NY - DECEMBER 16: A trader works on the floor of the New York Stock Exchange (NYSE) following an announcement that the Federal Reserve will raise interest rates for the first time in nearly a decade on December 16, 2015 in New York, United States. The Fed approved a quarter-point increase in its target funds rate. The new target will go from 0 percent to 0.25 percent. (Photo by Spencer Platt/Getty Images)
Traders work on the floor of the New York Stock Exchange (NYSE) in New York, U.S., on Wednesday, Dec. 16, 2015. The Federal Reserve raised interest rates for the first time in almost a decade in a widely telegraphed move while signaling that the pace of subsequent increases will be 'gradual' and in line with previous projections. Photographer: Michael Nagle/Bloomberg via Getty Images
CHICAGO, IL - DECEMBER 16 : A trader in the Standard & Poor's 500 stock index options pit at the Chicago Board Options Exchange (CBOE) yawns as he reacts to the Federal Reserves interest rate hike December 16, 2015 in Chicago, Illinois. The Federal Reserves raised the interest rates for the first time since 2006 by 0.25 percentage points. (Photo by Joshua Lott/Getty Images)
CHICAGO, IL - DECEMBER 16 : Traders in the Standard & Poor's 500 stock index options pit at the Chicago Board Options Exchange (CBOE) react to the Federal Reserves interest rate hike December 16, 2015 in Chicago, Illinois. The Federal Reserves raised the interest rates for the first time since 2006 by 0.25 percentage points. (Photo by Joshua Lott/Getty Images)
Traders work on the floor of the New York Stock Exchange (NYSE) in New York, U.S., on Wednesday, Dec. 16, 2015. The Federal Reserve raised interest rates for the first time in almost a decade in a widely telegraphed move while signaling that the pace of subsequent increases will be 'gradual' and in line with previous projections. Photographer: Michael Nagle/Bloomberg via Getty Images
CHICAGO, IL - DECEMBER 16 : Traders in the Standard & Poor's 500 stock index options pit at the Chicago Board Options Exchange (CBOE) react to the Federal Reserves interest rate hike December 16, 2015 in Chicago, Illinois. The Federal Reserves raised the interest rates for the first time since 2006 by 0.25 percentage points. (Photo by Joshua Lott/Getty Images)
CHICAGO, IL - DECEMBER 16 : Traders in the Standard & Poor's 500 stock index options pit at the Chicago Board Options Exchange (CBOE) react to the Federal Reserves interest rate hike December 16, 2015 in Chicago, Illinois. The Federal Reserves raised the interest rates for the first time since 2006 by 0.25 percentage points. (Photo by Joshua Lott/Getty Images)
NEW YORK, NY - DECEMBER 16: Traders work on the floor of the New York Stock Exchange (NYSE) following an announcement that the Federal Reserve will raise interest rates for the first time in nearly a decade on December 16, 2015 in New York, United States. The Fed approved a quarter-point increase in its target funds rate. The new target will go from 0 percent to 0.25 percent. (Photo by Spencer Platt/Getty Images)
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