Fed holds policy steady as US outlook brightens

The US Federal Reserve has left monetary policy unchanged as it offered a slightly brighter view of the prospects for the economy, although it appeared to keep the door open for more easing by saying there were still risks to growth.

The statement by the Federal Open Market Committee gave no indication that it was considering more purchases of mortgage-backed securities or a major overhaul in its communications policies, two options that appeared to be on the table.

"Economic growth strengthened somewhat in the third quarter," the Fed said in its post-meeting statement. "There are significant downside risks to the economic outlook, including strains in global financial markets."

However, Charles Evans, president of the Chicago Fed, dissented against the decision because he believed the central bank should take additional policy action at this meeting.

Hinting that further bond purchases remain an option, the central bank reiterated that it was prepared to adjust its balance sheet as needed to foster recovery.

Analysts will get more clarity on the Fed's outlook for the economy when the Fed releases quarterly economic forecasts later today, followed shortly after by a news conference with Fed Chairman Ben Bernanke.

Economists said the statement included few surprises but saw the language change to indicate a stronger assessment of the economy at present, but a poorer outlook in coming quarters.

"Although this statement does shift the balance of debate within the Fed towards more easing, it is hard to interpret it as a deliberate attempt to soften up markets for a December QE3 package," said ING economist Rob Carnell.

"That may still be what happens. But if so, it will be partly determined by events largely outside the control of the Fed - mainly the unfolding saga in Europe, and how markets react, as well as any progress in US labour markets."