Washington ? The Federal Reserve left a key interest rate unchanged Tuesday and began preparing Americans for the possibility that short-term rates will go higher this year as the country bounces back from recession.

After 11 consecutive rate reductions last year, Fed Chairman Alan Greenspan and his colleagues opted to continue the federal funds rate the interest that banks charge one another on overnight loans at 1.75 percent, the lowest level in 40 years. The decision was announced after a closed-door meeting.

In January, the Fed, citing signs of an economic rebound, ended a yearlong stretch of uninterrupted credit easing when it left the funds rate unchanged.

On Tuesday, the Fed policy-makers were even more upbeat about the economy’s prospects.

“The economy, bolstered by a marked swing in inventory investment, is expanding at a significant pace,” the Fed said in a statement explaining its decision to leave the rates unchanged.

“Nonetheless, the degree of the strengthening in final demand over coming quarters, an essential element in sustained economic expansion, is still uncertain,” the Fed added.

The Fed’s decision means that commercial banks’ prime lending rate, the benchmark for millions of consumer and business loans, will continue at 4.75 percent, a level last seen in November 1965.