The Federal Reserve on Tuesday kept interest rates unchanged, noting that while the unemployment rate has improved, it remains elevated. The central bank also said that some other threats to the economic recovery have eased.
The central bank said the inflationary impact from rising oil prices won't be permanent.
In January, the economy expanded at a moderate pace, the Federal Open Market Committee said in a statement.
"Labor market conditions have improved further; the unemployment rate has declined notably in recent months but remains elevated," the Federal Reserve said.
"Household spending and business fixed investment have continued to advance. The housing sector remains depressed. Inflation has been subdued in recent months, although prices of crude oil and gasoline have increased lately. Longer-term inflation expectations have remained stable."
The Fed held its key benchmark lending target, the federal-funds rate, at 0-0.25 percent.
Fed officials said in the statement they expect moderate economic growth to continue in the coming quarters, while unemployment rates will continue their gradual decline as well.
"Strains in global financial markets have eased, though they continue to pose significant downside risks to the economic outlook," the Fed statement said.
"The recent increase in oil and gasoline prices will push up inflation temporarily, but the Committee anticipates that subsequently inflation will run at or below the rate that it judges most consistent with its dual mandate."
The Federal Reserve follows a dual mandate to keep inflation rates within comfort zones while working to ensure optimal employment conditions.
The Fed reiterated its views that interest rates will remain low through the end of 2014.
The Fed provided no comment on plans to roll out extraordinary stimulus measures like quantitative easing, which are asset purchases from banks designed to ward off deflationary threats by weakening the dollar and sending stock prices rising.
The Federal Reserve said it would continue reshuffling its Treasury portfolio by selling short-term assets and buying more longer-term bonds, a policy dubbed by the markets as Operation Twist, in order to keep long-term borrowing rates low.
"The Committee will regularly review the size and composition of its securities holdings and is prepared to adjust those holdings as appropriate to promote a stronger economic recovery in a context of price stability."
Richmond Fed President Jeffrey Lacker voted against the decision, with the Fed stating that as the sole dissenter, Lacker "does not anticipate that economic conditions are likely to warrant exceptionally low levels of the federal funds rate through late 2014. "
Some market observers point out that the Fed will announce easing measures should unemployment rates stall later in the year
In a Reuters poll of firms that trade directly with the Fed, 14 of 18 economists anticipated further quantitative easing, the newswire reports.
The Fed, under Chairman Ben Bernanke, has already launched two rounds of quantitative easing, known widely as QE1 and QE2.
QE1 saw the Fed buy $1.7 trillion in assets from banks, mainly mortgage securities, while QE2 saw the central bank snap up $600 billion of Treasury bonds, the latter of which wrapped up on June 30, 2011.
Such moves are used to stimulate the economy when interest-rate cuts don't work, and as a side effect, inflationary pressures could emerge down the road.
One high-profile investor, Pimco founder Bill Gross, tells CNBC the Federal Reserve "is playing a game with us to some extent" by maintaining low interest rates.
"I think the Fed will continue to do this for a long time and subordinate investors in the bond market," says Gross, who runs the world's largest bond fund, according to CNBC.
Gross adds the Fed will eventually roll out a third round of quantitative easing, as the economy cannot support itself on its own when the liquidity from previous easing measures drains.
"Whenever the Fed and other central banks have paused with their quantitative easing programs since 2009, stock prices have fallen and economies have slowed. To my mind there’s little hope for the private markets substituting for central banks anytime soon," Gross says.
Other market watchers point out that the Federal Reserve is remaining cautious while being a little less gloomy.
"The FOMC is clearly shifting its stance away from blanket gloom to something more realistic, but they have a long way to go," Ian Shepherdson, chief U.S. economist at High Frequency Economics Ltd. in Valhalla, New York, writes in a note to clients, Bloomberg reports.
Other experts agree, pointing out the Federal Reserve will likely hold off on announcing major policy changes until the economy shows it is clearly and determinately on the mend or showing strong signs of tanking again.
"We are in a holding pattern that is likely to persist not only at the (Fed's) April meeting but for several meetings beyond that," says David Jones, chief economist at DMJ Advisors, according to the Associated Press.
"The Fed wants to be sure of the economic trajectory before they make any further moves."
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