Fed Leaves Key Interest Rate Unchanged, Sees Inflation as Transitory

The Federal Reserve signaled on Wednesday it is in no rush to scale back its extensive support for the U.S. economy and said a run-up in commodity prices that has dented growth should be fleeting.

The Fed's policy-setting Federal Open Market Committee said in a statement after a two-day meeting it intends to complete its $600 billion bond buying program in June as scheduled.

Despite some headwinds, the U.S. central bank indicated that it believed the economic recovery was proceeding at a moderate pace, with little risk an inflationary psychology would take hold.

"Inflation has picked up in recent months, but longer-term inflation expectations have remained stable and measures of underlying inflation are still subdued," it said.

The statement is expected to be overshadowed within hours by a question and answer session Fed Chairman Ben Bernanke will hold with journalists. The briefing, which is set for 2:15 p.m. (1815 GMT), marks the first regularly scheduled news conference by a Fed chairman in the central bank's 97-year history.

The Fed cut interest rates to near zero in December 2008 and bought close to $1.4 trillion in longer-term securities to help spur a recovery from the economy's deep recession.

When the recovery stumbled last year, it launched a new program to buy an additional $600 billion in government bonds.

The bond-buying plan met withering criticism domestically and internationally. Even some Fed officials have worried it would stoke inflation.

The Fed's unprecedented easy money policies have been accused of pushing up the cost of oil and other commodities. Top Fed officials have defended their actions by saying surging commodity costs primarily reflect rapid growth in emerging markets and that a healthy U.S. economy has global benefits.

The Fed lags other major central banks, including the European Central Bank, that have already moved to raise interest rates or are poised to do so.

This out-of-step U.S. monetary policy has undercut the dollar, which slid to a three-year low against major currencies on Wednesday. Analysts expect the greenback to remain under pressure.

Several Fed officials have expressed concern the central bank risks falling behind the curve in responding to price pressures if it does not reverse its ultra-loose stance soon.

Although headline inflation has shot higher since the start of the year, core price indexes closely monitored by the Fed are still well below levels that would normally cause alarm.

At the same time, higher commodity costs have weighed on consumer spending and the unemployment rate is still at a lofty 8.8 percent.

Analysts polled by Reuters expect a report on Thursday to show the economy advanced at a subdued 2 percent annual rate in the first quarter, if not slower. It expanded at a solid 3.1 percent pace in the final three months of last year.