Acknowledging the recent signs of strength in the economy, the US Federal Reserve said recent financial market strains have eased, thereby offering few clues on the chances for further monetary easing. The Fed described the economy as “expanding moderately”, unchanged from its January statement and said growth still faced significant downside risks. As a result, the US stock markets held gains while the treasury prices extended the losses. Meanwhile, the US Dollar gained versus the euro and the yen. Gold took a nosedive yesterday extending the bearish trend in the recent weeks.   

Policymakers affirmed that the job markets had improved but unemployment remains high, reiterating its expectation that rates would remain zero until at least late 2014. The officials are uncertain whether the progress reducing unemployment can be maintained given still-sluggish economic growth, and many analysts believe the central bank will launch another round of bond buying later in the year. The Fed also said that the recent spike in the energy costs would likely push up inflation but only in the short run.

The Fed repeated that it was likely to hold interest rates at rock bottom levels at least through late 2014 and that it would continue to rebalance its portfolio to pull down longer-term interest rates, a program that ends in June. Analysts are looking forward to the Fed’s two day meeting in April and June for decisions about any new directions for policy. At both meetings Bernanke will hold a news conference and officials will make public updated economic and interest rate projections.

While the economic recovery is nearly three years old, officials lament that the United States is still far from full employment. Although the jobless rate has fallen significantly over the last six months, it remains comparatively high. The Fed has downplayed any worries about inflation in recent months, saying it expects sluggish growth to hold price pressures in check. Officials said they expect inflation to run at or below the central bank’s current projection of 2% in coming quarters.

The only dent in the outlook was the climb of the oil prices in reaction to tensions over Iran’s nuclear program. US gasoline prices jumped in January, and even core consumer prices, which strip out volatile food and energy costs, rose by 2.3% over 12 months, the fastest pace in more than two years.