WASHINGTON (AP) - The Federal Reserve went further than ever Wednesday to assure consumers and businesses that they'll be able to borrow cheaply well into the future.
The Fed pushed back the date for any likely increase in its benchmark interest rate by at least a year and a half, until late 2014 at the earliest.
Its new timetable showed the Fed is concerned that the economy's recovery remains stubbornly slow. But it also thinks inflation will stay tame enough for rates to remain at record lows without igniting price increases.
Chairman Ben Bernanke cautioned that its late 2014 horizon for any rate increase is merely the Fed's "best guess." It has the flexibility to shift its timetable if the economic picture changes. But speaking at a news conference later Wednesday, Bernanke said:
"Unless there is a substantial strengthening of the economy in the near term, it's a pretty good guess we will be keeping rates low for some time."
Treasury yields fell after the Fed made its announcement around 11:30 a.m. CST. But yields stopped falling after the Fed issued forecasts for the economy and interest rates. They showed that while some members foresee super-low rates beyond 2014, six of the 17 members forecast a rate increase this year or next.
Lower yields could help further reduce mortgage rates and possibly boost stock prices as investors shift out of lower-yielding Treasurys.
The Dow Jones industrial average was down as much as 95 points in the morning and about 60 points before the Fed announcement. It shot to a gain of 103 points during the afternoon.
The Dow closed up 81.21 points, or 0.6 percent, at 12,756.96. That's the highest close since May 10. The Dow peaked for last year in April at 12,810. Before that, it had not been so high since May 2008.
Though Bernanke stressed the Fed's flexibility to adjust rates as its outlook shifts, some analysts expressed concern.
The Fed reduced its outlook for growth this year but is slightly more optimistic about the unemployment rate. It expects the economy to grow between 2.2 percent and 2.7 percent this year. That's down from its November's forecast of between 2.5 percent and 2.9 percent.
But it sees unemployment falling as low as 8.2 percent this year, better than its earlier forecast of 8.5 percent. December's rate was 8.5 percent.
The Fed also offered a firmer target for inflation - 2 percent - in a statement of its long-term policy goals.
The central bank said in a statement after a two-day policy meeting that the economy is growing moderately, despite some slowing in global growth. It held off on any further bond-buying programs to try to increase growth.
The Fed announced no further bond buying efforts. But it held out the possibility of doing so later. It said it was prepared to adjust its "holdings as appropriate to promote a stronger economic recovery in the context of price stability."
The extended time frame is a shift from the Fed's previous plan to keep the rate low at least until mid-2013. Some economists said the new late 2014 target could lead to further Fed action to try to invigorate the economy.