Chip Somodevilla/Getty Federal Reserve Board Chairman Jerome Powell.

The Federal Reserve announced Wednesday that it decided during a two-day policy meeting to keep its key interest rate unchanged.

Traders had widely expected this decision, anticipating that the Fed would raise the benchmark for borrowing costs two more times this year including next month.

The Fed said the economy was growing at a "strong" pace and reaffirmed its plans to raise interest rates gradually.

The Federal Reserve held its benchmark interest rate unchanged Wednesday and reaffirmed its plans to continue raising borrowing costs at a gradual pace.

The decision to hold rates had been widely expected and came after a two-day meeting of the Federal Open Market Committee, which dictates monetary policy.

"This statement is a placeholder ahead of the quarterly forecast meeting next month," Ian Shepherdson, the chief economist at Pantheon Macroeconomics, said in a note.

Traders expect the Fed to raise borrowing costs twice more this year. They see a 92% probability that it will raise the fed funds rate to a range of 2% to 2.25% in September, according to Bloomberg.

"Economic activity has been rising at a strong rate," the Fed's statement said, thanks to strong household spending and business investment. An advance estimate of second-quarter gross domestic product released Friday showed that the economy grew at an annualized rate of 4.1%, the fastest in nearly four years.

During his semiannual congressional testimony in mid-July, Fed Chairman Jerome Powell said that, with appropriate monetary policy, the job market would remain strong and inflation would stay around the 2% target for "several years."

He said that it was difficult to predict the outcome of the ongoing trade disputes but that a prolonged trade war would hurt the economy.

"We see no reason, then, to change our view that the Fed will hike in both Sep and Dec this year, but we don't expect any serious change in the language of the statement until December or March," Shepherdson said.

With seven rate hikes in the bag since the financial crisis, the Fed is contemplating whether to remove language in its statement that continues to describe borrowing costs as low. Minutes of its meeting in June showed that some FOMC officials debated how communications may evolve if the economy continued to make progress and was able to withstand higher rates.

Read more: Here's how the Fed raises interest rates and why it matters

Wednesday's 1 statement showed the Fed still planned to continue raising interest rates gradually.

Here's the Fed's statement:

"Information received since the Federal Open Market Committee met in June indicates that the labor market has continued to strengthen and that economic activity has been rising at a strong rate. Job gains have been strong, on average, in recent months, and the unemployment rate has stayed low. Household spending and business fixed investment have grown strongly. On a 12-month basis, both overall inflation and inflation for items other than food and energy remain near 2 percent. Indicators of longer-term inflation expectations are little changed, on balance.

"Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee expects that further gradual increases in the target range for the federal funds rate will be consistent with sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee's symmetric 2 percent objective over the medium term. Risks to the economic outlook appear roughly balanced.

"In view of realized and expected labor market conditions and inflation, the Committee decided to maintain the target range for the federal funds rate at 1-3/4 to 2 percent. The stance of monetary policy remains accommodative, thereby supporting strong labor market conditions and a sustained return to 2 percent inflation.

"In determining the timing and size of future adjustments to the target range for the federal funds rate, the Committee will assess realized and expected economic conditions relative to its maximum employment objective and its symmetric 2 percent inflation objective. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments.

"Voting for the FOMC monetary policy action were: Jerome H. Powell, Chairman; John C. Williams, Vice Chairman; Thomas I. Barkin; Raphael W. Bostic; Lael Brainard; Esther L. George; Loretta J. Mester; and Randal K. Quarles."

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