Federal Reserve officials on Wednesday retained a pledge to keep the benchmark interest rate at a record low for an 'extended period' and signaled that European indebtedness may harm American growth. 'The economic recovery is proceeding' and 'the labor market is improving gradually,' the Fed's Open Market Committee said in a statement in Washington. Still, 'financial conditions have become less supportive of economic growth on balance, largely reflecting developments abroad.' Fed Chairman Ben Bernanke is trying to cut unemployment that's close to a 26 -year-high and maintain the recovery as new- home sales slide and growth in private payrolls weakens. He must also contend with fallout from the European debt crisis, which has pushed share prices lower and threatens to shake consumer and business confidence. The central bank, at a two-day meeting, left the overnight interbank lending rate target unchanged in a range of zero to 0.25 percent, where it's been since December 2008. High unemployment, low inflation and stable price expectations 'are likely to warrant exceptionally low levels of the federal funds rate for an extended period,' the Fed said, repeating language from every policy meeting since March 2009. Policy makers won't raise rates until the first quarter of next year, based on the median estimate in a Bloomberg News survey of economists this month. The European crisis has prompted analysts at Barclays Capital, Credit Suisse, UBS and Deutsche Bank to push back by several months their predictions for a Fed rate increase. U.S. central bankers repeated that inflation is 'likely to be subdued for some time.' The Fed also said that 'prices of energy and other commodities have declined somewhat in recent months, and underlying inflation has trended lower.' Prices in April rose 1.2 percent from a year earlier under the Fed's preferred index, which excludes food and energy costs, the slowest pace since 2001. Kansas City Fed President Thomas Hoenig dissented from the decision for the fourth straight meeting, reiterating his view that the low-rate pledge may fuel asset-price bubbles and limit the central bank's flexibility to raise borrowing costs.. Rising investor concern that Greece's debt woes might spread prompted European governments early last month to backstop the euro with a rescue fund of almost $1 trillion. Fed policy makers held an emergency meeting on May 9 to authorize restarting currency swaps with central banks in Europe, Canada and Japan after closing the financial-crisis program in February. The outstanding balance as of June 16 was $1.24 billion, compared with a high of $583.1 billion in December 2008. The Fed statement didn't mention the one other remaining open emergency-lending program, the Term Asset-Backed Securities Loan Facility, which has been scheduled to close on June 30. The program was designed to aid the commercial real-estate market by subsidizing investor purchases of mortgage-backed securities. Since the last meeting, the Standard & Poor's 500 Index has dropped about 8 percent. Private employers added 41,000 jobs in May, down from a gain of 218,000 in April. Housing starts fell 10 percent to the lowest level this year, sales of previously owned homes dropped the most in four months and retail sales fell for the first time in eight months. Fed policy makers delivered updated quarterly economic forecasts at this week's meeting, and economists including former Fed Governor Lyle Gramley say officials probably trimmed their expectations for U.S. growth. In April, Fed governors and regional presidents projected an expansion of 3.2 percent to 3.7 percent this year and 3.4 percent to 4.5 percent in 2011. The central bank will release minutes of the meeting, including forecasts, on July 14. Not all signs are pointing to a growth slowdown. Manufacturing expanded in May for a 10th month as a private export index climbed to the highest level in two decades. Confidence among U.S. consumers rose in June to the highest level in more than two years, according to the Thomson Reuters/University of Michigan survey. Inflation has slowed further in data released since policy makers last met. The Labor Department's consumer price index fell 0.2 percent in May after a 0.1 percent drop in April, the first consecutive declines since 2008. Excluding food and energy, the core rate rose 0.9 percent in May from a year earlier, matching the smallest year-over-year gain since 1966. With assistance from Steve Matthews in Atlanta and Vivien Lou Chen in San Francisco. 