The Federal Reserve is keeping its key interest rate unchanged at a time when inflation remains persistently low. But it signaled Wednesday that it’s edging closer to gradually shrinking its bond holdings, a step that would likely boost long-term borrowing rates including mortgages.

The Fed noted Wednesday in a statement that inflation has stayed undesirably low even though the job market keeps strengthening, with the unemployment rate just 4.4 percent. Normally, solid hiring drives up wages and prices. But the Fed’s preferred inflation gauge has moved further below its 2 percent target.

Too-low inflation can slow economic growth by causing people to delay purchases if they think they can buy a product for a lower price later.

The central bank decided after its latest policy meeting to leave its key rate unchanged in a range of 1 percent to 1.25 percent after having raised rates twice this year. The Fed says it still envisions further “gradual” rate hikes. But many economists say they foresee no further rate increases this year unless inflation picks up. If inflation does accelerate, the Fed may feel comfortable raising rates again in December.

Addressing its bond portfolio, the Fed slightly changed its statement to say such a reduction would begin “relatively soon,” provided the economy improves further. Many economists think the Fed will begin shrinking its balance sheet sometime this fall.

The Fed’s balance sheet has soared five-fold — to $4.5 trillion — since the summer of 2008, just before the financial crisis erupted. The balance sheet grew as a result of bond purchases by the Fed that were intended to lower long-term loan rates and stimulate a struggling economy.

Now, the reverse is expected: A sell-off of the bonds, even a gradual one, would likely make some long-term loans for consumers and businesses more expensive.

“The Fed is shifting their immediate focus away from short-term interest rates and toward beginning the normalization process of the $4.5 trillion balance sheet,” noted Greg McBride, chief financial analyst at Bankrate.com.

McBride said this shift could represent a “reprieve for credit card holders and home equity borrowers,” whose rates are more influenced by the Fed’s benchmark rate.

Many economists say they think the Fed could announce after its September meeting a precise date for the start of the bond reductions. Some foresee the process beginning in October.

“A start date for the balance sheet normalization is all teed up for the September meeting,” McBride said.

The Fed has sought to assure investors that the process would be extremely gradual. In its statement Wednesday, it pointed to the plan that it laid out in June: Monthly reductions of the Fed’s bond portfolio would start at a level of no more than $6 billion for Treasurys and $4 billion for mortgage bonds.

The Fed’s policy statement Wednesday was approved 9-0. In June, Neel Kashkari, president of the Fed’s Minneapolis regional bank, had dissented, arguing against the Fed’s rate hike at that meeting.

Wednesday’s statement was otherwise little changed from the Fed’s June statement, though the central bank did note that job gains have been solid this year. It acknowledged the lingering slowdown in inflation, saying both overall inflation and core prices, which exclude energy and food, “have declined and are running below 2 percent.”

Months ago, the Fed had signaled its readiness to raise rates three times this year on the assumption that it needed to be more aggressive to ensure that consistently low unemployment didn’t contribute to high inflation later on.

But in testifying to Congress this month, Chair Janet Yellen had sounded less sure about her previous position that the slowdown in inflation this year was due to such temporary factors as a big drop in charges for cellphone plans.

Yellen conceded that Fed officials were puzzled by recent developments. Her remarks lifted financial markets as investors interpreted her words to suggest that the Fed might slow its pace of rate increases.

Over the past 12 months, the inflation gauge the Fed monitors most closely has risen just 1.4 percent, according to the latest data. That’s down from a 1.9 percent year-over-year increase in January.

The Fed’s statement Wednesday coincides with a period of lackluster growth for the U.S. economy. During the January-March quarter this year, the gross domestic product, the broadest gauge of economic health, grew at an anemic 1.4 percent annual rate — well below a healthy pace and far below the consistent 3 percent or more annual growth that President Donald Trump’s administration has said it can achieve.

During the April-June quarter, the economy is generally thought to have grown at an annual rate of about 2.5 percent. The government will offer a preliminary estimate of that figure Friday.

(AP)