The Federal Open Market Committee decided Tuesday to keep its target for the federal funds rate at 1%.

In a statement the Committee said it continues to believe that current monetary policy, along with underlying growth in productivity, is providing important ongoing support to economic activity.

The Fed said that spending is firming, although labor market indicators are mixed. It added that business pricing power and increases in core consumer prices remain muted.

It said that that the upside and downside risks for sustainable economic growth for the next few quarters are balance.

In contrast, the probability, though minor, of an unwelcome fall in inflation exceeds that of a rise in inflation from its already low level.

However, it also suggested that the risk of deflation persists. “In contrast, the probability, though minor, of an unwelcome fall in inflation exceeds that of a rise in inflation from its already low level.”

BMO Nesbitt Burns Inc. said the decision to hold the line means the Fed will continue to reflate the U.S. economy and will tolerate much stronger real growth than in the past before reversing course.

“It is unlikely in my view that the Fed will have to cut the fed funds rate again,” said chief economist Sherry Cooper. “The only reason they would is if the economic rebound derails, which at this stage is improbable in the near term. But, for sure, the Fed stands ready to cut rates and even buy bonds if a sustained economic expansion does not materialize.”

Cooper said that despite the Fed’s inaction, the Bank of Canada will probably cut rates again in early September.

“The overnight rate here is still 3% and the Canadian dollar is trending higher. Canada’s economy — hard hit by reduced exports, SARS and BSE — is now growing at a much slower pace than in the U.S. and does not enjoy the benefits of fiscal stimulus. Disinflation here also points to further BOC ease.”