(Bloomberg) -- The Federal Reserve left interest ratesunchanged while saying risks to the U.S. economy have subsided andthe labor market is getting tighter, suggesting conditions aregetting more favorable for an increase in borrowing costs.

“Near-term risks to the economic outlook have diminished,” theFederal Open Market Committee said in its statement Wednesday aftera two-day meeting in Washington, before repeating language fromJune that the panel “continues to closely monitor” inflation andglobal developments. Job gains were “strong” in June and indicators“point to some increase in labor utilization in recent months,” theFed said.

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U.S. central bankers are taking stock of the economy’s progressin the wake of the U.K.’s vote last month to leave the EuropeanUnion, as well as the large swing from May’s soft labor report toJune’s rebound. While Chair Janet Yellen has repeatedlystated that the Fed is likely to raise interest rates gradually,market volatility and the unexpected dip in job gains have delayedsuch plans.

The committee repeated that it expects “economic conditions willevolve in a manner that will warrant only gradual increases in thefederal funds rate.” There was no reference to the specific timingof the next potential rate hike.

Labor market

Data since the Fed’s June meeting indicate “that the labormarket strengthened and that economic activity has been expandingat a moderate rate,” the Fed said. The statement contained threereferences to recent improvement in the labor market.

The central bank left the target range for the benchmark federalfunds rate at 0.25 percent to 0.5 percent, where it’s been since aquarter-point increase in December that ended seven years ofnear-zero rates.

Household spending “has been growing strongly,” while businessinvestment “has been soft,” the FOMC said. The Fed reiterated thatit expects inflation to rise to its 2 percent target over themedium term.

Yellen is defining her term at the central bank with a cautiouspolicy aimed at steering the economy through domestic headwindssuch as tight credit and low productivity gains as well as globalshocks. The unexpectedly long pause in interest-rate increases hassuggested she’s waiting for overwhelming evidence of a strongeconomy and for international risks to subside.

Data improving

The statement contrasted June’s jobs report with “weak growth inMay.” Non-farm payrolls rose by 287,000 jobs in June, dispellingsome concern that hiring had slowed, after May’s gain of 11,000.Recent reports on retail sales, housing starts, capacityutilization, and service industries have all beat economists’expectations.

Yellen wasn’t scheduled to hold a press conference after thisweek’s meeting. Fed officials next meet Sept. 20-21, and willpublish new forecasts and rate projections at the conclusion ofthat gathering.

Esther George, president of the Kansas City Fed, dissented,reinstating her preference for a quarter-point increase aftersupporting the decision in June to leave rates unchanged.

All but two of 94 analysts surveyed by Bloomberg News expectedthe Fed to leave interest rates unchanged at the meeting. Federalfunds futures ahead of Wednesday’s statement suggested that traderssee close to a 50-50 chance of a rate hike at or before the FOMC’sfinal meeting this year, in December.

Yellen will speak at the Kansas City Fed’s Jackson Hole,Wyoming, symposium on Aug. 26. That will provide her with anopportunity to discuss the committee’s sense of the economy’sprogress.

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