The Federal Reserve said Wednesday that the economy is bouncing back and the job market is improving as it continued to reduce the monthly pace of its asset purchases.

"Economic activity is rebounding in the current quarter and will continue to expand at a moderate pace thereafter," Fed Chairman Janet Yellen said at a news conference in Washington after a meeting of the Federal Open Market Committee. Even with declines in unemployment, "a broader assessment of indicators suggests that underutilization in the labor market remains significant."

The Fed committee trimmed bond buying by $10 billion for a fifth straight meeting, to $35 billion, keeping it on pace to end the program late this year.

Yellen and her fellow policymakers are debating how long to keep interest rates near zero as the U.S. labor market improves and inflation moves closer to the Fed's 2 percent goal.

The policymaking committee repeated Wednesday that it's likely to "reduce the pace of asset purchases in further measured steps" and that it expects rates to stay low for a "considerable time" after the bond buying ends.

Updating their economic forecasts, Fed officials predicted their target interest rate will be 1.13 percent at the end of 2015 and 2.5 percent a year later, higher than previously forecast. They lowered their long-run estimated rate to 3.75 percent from 4 percent, reflecting slower long-term growth for the U.S. economy. Fed participants estimated long-term growth at 2.1 percent to 2.3 percent, compared with 2.2 percent to 2.3 percent in March.

"Inflation has continued to run below the committee's 2 percent objective," Yellen said, and low inflation "could pose risks to economic performance." At the same time, longer-term expectations are still "well-anchored."

The personal consumption expenditures index, the Fed's preferred inflation gauge, rose 1.6 percent from a year earlier in April, the most since November 2012. The consumer price index, a separate inflation measure, rose 2.1 percent in May.

The Fed will divide its bond purchases between $20 billion in Treasurys and $15 billion in mortgage-backed securities beginning in July, the Federal Open Market Committee said in its statement.

Yellen said policymakers are discussing a new set of principles to guide an eventual exit from record easing and expect to announce them later this year.

"The committee is confident it has the tools it needs to raise short-term interest rates" when necessary, she said. The Fed "will continue to have a very large balance sheet for some time."

Three rounds of large-scale asset purchases intended to hold down long-term interest rates have swelled the central bank's balance sheet to a record $4.34 trillion. Fed officials are testing tools that will be needed to tie up excess reserves in the banking system, a step they will have to take to raise short-term rates.

Steady labor market gains have bolstered confidence among policymakers that they can wind down asset buying without endangering the five-year expansion.

Unemployment held at 6.3 percent in May, the lowest in almost six years, and payrolls increased by more than 200,000 for a fourth consecutive month, the first time that's happened since early 2000.

Some measures of employment watched by Yellen show continued weakness. The so-called participation rate, which shows the share of working-age people in the labor force, held at 62.8 percent, matching the lowest since March 1978.

Policymakers are counting on a faster economic expansion to pull more people back into the labor force. The pace of growth will exceed 3 percent in the final three quarters of the year, according to economists surveyed by Bloomberg, after a 1 percent first-quarter contraction caused in part by harsh winter weather.

Manufacturing grew in May at the fastest pace this year, according to data from the Institute for Supply Management. The institute's service-industry gauge showed the strongest expansion since August.

"We've seen quite the decent rebound in the second quarter, but more importantly, the momentum is building for the second half," said Ian Shepherdson, chief economist at Pantheon Macroeconomics in White Plains, N.Y.

Recent reports show that residential construction is stabilizing after it subtracted from growth over the past two quarters.

Builders broke ground last month on 1 million homes at an annualized rate after 1.07 million in April, the best two-month reading since late 2013.

Information for this article was contributed by Susanne Walker, Callie Bost, Michelle Jamrisko, Nina Glinski and Steve Matthews of Bloomberg News.

Business on 06/19/2014