Fed Keeps Rates, Asset Plan Unchanged

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NEW YORK (TheStreet) -- The Federal Reserve's policymaking arm offered no surprises Wednesday as it kept the target Fed funds rate unchanged at near zero and said it would complete its plan to buy $600 billion of long-term securities by June, as planned.

The Federal Open Market Committee's rate announcement largely echoed its last statement as it voted to keep the target interest rate at zero to 0.25% and maintained language promising to keep interest rates low "for an extended period."

The Committee also noted recent increases in inflation but repeated expectations that it will be "transitory" and reiterated its promise to "pay close attention to the evolution of inflation and inflation expectations."

Major U.S. indices rose following the FOMC announcement. Bob Phillips, managing partner of Spectrum Management Group said the market probably interpreted the statement to mean that "the game hasn't changed," but he was surprised that the Fed retained the "extended period" language.

"They're obviously indicating that they see weakness continuing," he said. "One of the things we sometimes overlook is the fact that the Fed has two jobs: one is to control inflation and the other is to bring unemployment down. So they're caught between a rock and a hard place in this weak environment. I think they're banking on the fact that as long as unemployment is high, inflation will remain pretty low."

The lack of any new information regarding how the Fed plans to keep inflationary pressures under control built expectations that Fed Chairman Ben Bernanke will address rising costs in his first press conference to discuss the FOMC statement at 2:15 p.m. ET.

"I think Bernanke will be pressed hard on rising costs and I'll be interested to see whether he gives a direct answer," Phillips said. "Bernanke's typical response has been that the rise in oil and commodity prices is driven by supply and demand, not monetary policy, but I disagree with that. I believe a lot of price pressure in commodity markets is coming from spectators. As long as you have loose monetary policy, speculative pressure remains."

Minutes from the FOMC's April 26-27 meeting will be released on May 18 and the next policy-setting meeting will be June 21-22.

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