The central bank also said it will slow the pace of its programme to buy $300bn worth of US Treasury securities, a plan which is intended to lead to lower rates on consumer debt and encourage Americans to spend more.

"To promote a smooth transition in markets ... the committee has decided to gradually slow the pace of these transactions and anticipates that the full amount will be purchased by the end of October," the Fed said.

Fed 'confident'

Critics have said that the programme to buy Treasury securities is little more than a move by the Fed to print more money at a time when the US is suffering from its highest budget deficit on record.

The US budget deficit for the 2009 fiscal year now stands at $1.27 trillion, the US government announced on Wednesday.

Craig Thomas, a senior economist at PNC Financial Services, said that the Fed's move was a sign that the central bank is confident that an economic recovery is close.

"They see the worst with the economy is behind us, but they don't want to jump the gun and pull back quickly," he said.

A series of US government reports released in recent weeks have suggested that US economy is beginning to stabilise, although US President Barack Obama has warned that jobs will continue to be lost in large numbers for several months.

The Fed in July predicted that economic growth would return in the second half of the fiscal year, but said that unemployment would remain extremely high going into 2011.