Fed leaves key rate unchanged

The Federal Reserve kept interest rates unchanged on Wednesday in its last policy decision before the US election, but signalled it could hike in December.

The US central bank said the economy had gained steam and job gains remained solid.

Policymakers also expressed more optimism that inflation was moving toward their 2.0 per cent target.

The Fed said in a statement that the committee judges that the case for an increase in the federal funds rate has continued to strengthen but decided, for the time being, to wait for some further evidence of continued progress toward its objectives.

That suggests the bar is low for a rate increase at the Fed`s final policy meeting of the year in mid-December, which has largely been factored in by financial markets.

US stocks extended earlier losses and Treasury yields fell after the release of the Fed statement. The US dollar briefly pared losses before falling further against a basket of currencies.

In the statement, the Fed`s increasing confidence that prices were moving higher was reflected in its view that "inflation has increased somewhat since earlier this year" and the removal of its previous reference to inflation remaining low in the near term.

Policymakers have increasingly converged on the likelihood of a December hike.

In September, Fed Chair Janet Yellen said that a move before year`s end was likely as long as US employment and inflation continued to strengthen.

Since then, job gains have continued at a solid rate and inflation has ticked higher, putting both close to the Fed`s long-run targets.

The economy also has gained momentum, growing at a 2.9 per cent annual pace in the third quarter after a fairly sluggish first half, according to a news agency report.