The Fed's decision not to hike rates this month shouldn't be interpreted as a lack of confidence in the economy, Chair Janet Yellen said Wednesday.
After the latest move by the central bank to pass on a hike, Yellen was left to defend the Fed's decision to maintain a crisis-era rate policy despite the last recession ending more than seven years ago.
"Our decision does not reflect a lack of confidence in the economy," she said during her quarterly news conference after the Federal Open Market Committee meeting. "Conditions in the labor market have strengthened and we expect that to continue, and while inflation remains low we expect it to rise to our 2 percent objective over time."
FOMC officials dissented over whether to raise rates this month, with three members voting against the final committee statement to keep the funds rate between 0.25 and 0.50 percent.
Yellen said the majority's thinking was that economic progress is continuing but there was not a strong enough case to hike.
"We are generally agreed that gradual increases in the federal funds rate to remove what is a modest degree of accommodation will be appropriate, but we don't see the economy as overheating now," she said.
However, Yellen gave a fairly strong indication that a hike will happen before 2016 is over. She said the labor market is strengthening and "risks to the outlook have become roughly balanced."
The FOMC has two more meetings — in November, shortly before the presidential election, and December, where Yellen gives her final post-meeting news conference of the year.
"I would expect to see (a rate increase this year) if we continue on the current course of labor market improvement, and there are no major risks that develop and we stay on the current course," she said.