The United States Federal Reserve yesterday said it is sticking to its plan to keep stimulating US growth until the job market improves, even as it acknowledged that some parts of the economy were looking a bit better.

After a two-day meeting, the central bank repeated its vow to keep rates near zero until mid-2015 and its pledge to keep supporting growth while the recovery strengthens. Its policy-setting panel made no change in its plan to purchase US$40 billion (S$49 billion) in mortgage-backed debt a month to push interest rates lower and spur a stronger recovery.

"The committee remains concerned that, without sufficient policy accommodation, economic growth might not be strong enough to generate sustained improvement in labour market conditions," the Fed said.

The central bank's statement differed little from its announcement last month in which it launched its third round of bond-buying, or quantitative easing, known as QE3, and made clear that officials still had concerns on the recovery's strength.

Analysts said that December will likely be a more eventful meeting as the Fed decides what to do when its separate Operation Twist programme, in which it is buying long-term Treasury debt with proceeds from short-term securities, expires at the end of the year.

"Officials will likely make a decision then on whether QE3 will be extended to include Treasuries purchases when Operation Twist ends at year-end," said economist Jim O'Sullivan. "We expect it will be."

US GDP grew at an annual rate of only 1.3 per cent in the second quarter. Economists expect the pace of recovery quickened a bit in the third quarter but not by enough to put steady downward pressure on the jobless rate, which fell sharply last month but remains at an elevated 7.8 per cent.

The Fed noted that the housing sector was continuing to gather its strength and said household spending had grown "a bit more quickly". However, it cautioned that business investment was softening.

It also nodded to a recent increase in inflation but said it was linked to higher energy prices, adding that inflation expectations have remained stable.

The Fed, which has held rates close to zero since December 2008, had already bought US$2.3 trillion in mortgage-related and government debt before it launched its latest round of stimulus.

Some analysts and conservative politicians have expressed concern that the Fed's policies could spark inflation but price increases have been tame so far. But growth has, too, while a looming tightening of US fiscal policy risks tossing the economy back into recession.

Europe's debt crisis, a key source of concern for the Fed, also remains unresolved, although it is not flaring up too wildly in financial markets, offering comfort that the US economy will escape any contagion.

TODAY