By Nick Timiraos 

WASHINGTON -- The Federal Reserve held short-term interest rates steady Thursday and offered a mostly upbeat assessment of the U.S. economy, suggesting another rate increase is likely by year-end.

The Fed repeatedly emphasized the economy's strength in a statement released after its two-day policy meeting. It offered nothing to dispel market expectations that it would deliver its fourth rate rise of the year in December.

Data released since officials last met in September indicate "that the labor market has continued to strengthen and that economic activity has been rising at a strong rate," the Fed said.

The only significant change to the statement nodded to a recent pullback in business investment from its rapid pace earlier this year.

Officials voted unanimously in September to raise their benchmark rate to a range between 2% and 2.25%. On Thursday, they voted to leave it unchanged, again with no dissents.

The economy expanded at a 3.5% annual rate in the third quarter after a 4.2% pace in the second quarter, the Commerce Department reported. That is roughly double the growth rate Fed officials believe can be sustained over the long run unless the supply of workers, or their productivity, increases more rapidly.

Meanwhile, the unemployment rate held at 3.7% in October, a nearly half-century low, and average hourly wages rose 3.1% from a year earlier, the biggest year-to-year increase since 2009.

Broad strength in the economy and labor market -- powered in recent quarters by solid consumer spending -- is more than enough to offset any concerns about soft spots in the economy.

The housing sector, for example, has cooled this year, as interest-rate increases have pushed mortgage rates to a seven-year high. That has exacerbated affordability challenges stemming initially from low supplies of homes for sale that have rapidly pushed up prices in recent years.

Financial markets have also experienced more volatility. Stocks and bonds were sold off last month as investors began to take more seriously the Fed's plans to continue raising rates over the coming year to prevent the economy from overheating. The potential of more tariffs have also weighed on the outlook for corporate earnings.

In September, Fed officials penciled in plans to raise their benchmark short-term rate once more this year. Officials are equally split over whether to raise rates two, three or four times next year. That would push the rate closer to 3%, which is where most officials expect it to settle over the long term -- a so-called neutral level that neither spurs nor slows growth.

Fed Chairman Jerome Powell last month played down the debate over whether the Fed would raise rates above neutral, suggesting it was premature because rates are still boosting growth. Rates are "a long way from neutral at this point, probably," he said. "We need interest rates to be gradually, very gradually, moving back toward normal."

The recent stock-market selloff appears unlikely to change the Fed's plans. The market pullback received no mention in the Fed's statement, unlike earlier downdrafts in 2015 and 2016.

Some officials have indicated the market movements could ease concerns that low volatility and rising asset values have fueled excessive risk-taking.

Inflation over the next year will be central to determining how the Fed's policy path evolves. Inflation has been holding near the Fed's 2% target for most of this year after undershooting it for many years. The Fed views inflation around 2% as a sign of balanced supply and demand.

"If we see things getting stronger and stronger, and inflation moving up, then we might move a little quicker," Mr. Powell said last month. "And if we see the economy weakening or inflation moving down, we might move a little more slowly."

One key question is the degree to which higher wages could lead businesses to raise prices.

Tariffs could also result in slightly higher inflation by raising prices of imported goods, though a stronger dollar could offset these effects somewhat by making it cheaper for Americans to buy from overseas.

This week's Fed meeting was the first since President Trump recently escalated his criticism of the central bank. In an interview with The Wall Street Journal last month, Mr. Trump cited the Fed as the top risk facing the economy. He earlier described the Fed as crazy and out of control due to its plans to gradually lift rates despite few obvious signs of inflation.

Fed officials have said they will make monetary-policy decisions without any consideration of politics.

"We've stayed pretty focused on the facts about the economy," said Randal Quarles, the central bank's vice chairman for bank supervision, in response to a question about Mr. Trump's criticism last month. "The job of the Fed is to remain focused on the facts of the economy and to be independent of the administration."

Write to Nick Timiraos at nick.timiraos@wsj.com

(END) Dow Jones Newswires

November 08, 2018 17:55 ET (22:55 GMT)