WASHINGTON (AP) -- Signaling confidence in a recovery, the Federal Reserve decided Wednesday to stretch out the pace of a program intended to lower mortgage rates and prop up the housing market.
Even so, rates on home loans are expected to remain low.
With the economy on the mend, the Fed said it now plans to reach its goal of buying $1.45 trillion in mortgage-backed securities and debt by the end of March, rather than by the end of this year as originally scheduled. It's the second time since August that the Fed has opted to slow emergency programs designed to encourage spending and boost the economy.
Those decisions show that Fed Chairman Ben Bernanke and his colleagues are shifting from managing the financial and economic crises to nurturing a budding recovery.
In a far brighter assessment, Fed policymakers said: "Economic activity has picked up following its severe downturn." In August, policymakers had observed that economic activity was "leveling out."
To foster the recovery, the Fed also decided to hold the target range for its key bank lending rate at a record low of between zero and 0.25 percent. It again pledged to keep rates there "for an extended period." Economists predict that means through the rest of this year, and perhaps into part of next year.
Holding that rate steady means commercial banks' prime lending rate -- used to peg rates on home equity loans, certain credit cards and other consumer loans -- will stay at about 3.25 percent, the lowest in decades. The goal is to entice people and businesses to step up spending to aid economic growth.
Yet even so, Fed policymakers predict inflation will remain "subdued for some time."
On Wall Street, stocks initially enjoyed a bounce but quickly gave up those gains, once traders digested the news and saw nothing new in it to boost stocks.
The "market got exactly what it was expecting," said Thomas Wilson, a managing director at Brinker Capital in Berwyn, Pa.