Fed Keeps Rates Near Zero

(Update includes stock market reversal)

NEW YORK (TheStreet) -- The Federal Reserve made the widely anticipated declaration on Wednesday that it will continue its cheap-money policy that has helped spur an economic recovery, while weighing on the dollar.

The policy-making Federal Open Market Committee said at the close of its two-day meeting that it will hold its key interest-rate target at a level of zero to 0.25%. The unanimous decision comes as no surprise, and the U.S. central bank reiterated its pledge to keep rates "exceptionally low" for an "extended period" of time.

"The committee ... continues to anticipate that economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels of the federal funds rate for an extended period," the Fed said in a statement.

The key change in the Fed's language is an indication that rates will not change until some slack is picked up in the economy -- through borrowing, spending, production and the like -- to move inflation and market expectations higher. But the Fed also repeated its assertion that inflation is likely to "remain subdued for some time."

The Dow Jones Industrial Average initially surged more than 150 points after the decision, but later reversed. Recently, the average was trading up 23 points to 9795.

The central bank has pumped more than $1 trillion worth of money into the markets through low interest rates, collateral-based lending programs and other means, and must extract those funds before inflation begins to roar. Some of those programs have already petered out or been scaled back as the private market has strengthened.

Last week, the Fed announced that over the next several weeks, it will halt its unusual tactic of buying $300 billion worth of Treasury bonds as well. Its program to buy $1.25 trillion worth of mortgage-backed securities is expected to continue through March.