WASHINGTON – Expressing concern for a recent rise in borrowing costs, the U.S. Federal Reserve announced yesterday that it would continue purchasing bonds at an $85 billion monthly pace, Reuters reports.

"The tightening of financial conditions observed in recent months, if sustained, could slow the pace of improvement in the economy and labor market," the U.S. central bank said in a statement explaining its decision.

The move surprised financial analysts who were expecting a reduction of the central bank’s economic stimulus.

"The economy is stabilizing but it's not growing," said Douglas Borthwick, managing director at Chapdelaine Foreign Exchange. "The Fed has always said they were data-dependent and data would determine the timing of the taper. But the data that has come out over the past month hasn't been good."

The Fed said the economy was improving, despite tax hikes and budget cuts in Washington.

"Taking into account the extent of federal fiscal retrenchment, the committee sees the improvement in economic activity and labor market conditions since it began its asset purchase program a year ago as consistent with growing underlying strength in the broader economy," it said.

The move comes as Fed officials announced a somewhat dour outlook for economic growth. The Fed said it sees growth in a 2% to 2.3% range this  year, down from 2.3% to 2.6% announced in its June estimates. The downgrade for 2014 was even sharper.

The Fed said that it would not raise rates at least until unemployment falls to 6.5%, as long as inflation does not threaten to exceed 2.5%.