With the economy still fragile, some on Wall Street were hoping the Fed would increase the amount of its asset-purchase program beyond the $1.75 trillion it had previously announced to drive down mortgage rates, which have ticked up recently as more investors have placed bets that the Fed would tighten soon.
Other investors, worried about the specter of inflation, had hoped the central bank would signal that it might begin backing away from its current strategy of pumping out money to spur lending and stimulate the economy.
Fed policymakers gave a nod to inflation hawks by removing remarks in its last meeting in late April that pointed to deflation risks.
And the central bank took note of recent increases in the prices of energy and commodities and said it was monitoring its balance sheet and would "make adjustments to its credit and liquidity programs as warranted."
But the Fed said inflation "will remain subdued for some time," and left open the option of expanding its asset purchase program in the future.
At the same time, with the central bank deciding not to become more aggressive in its monetary policy, analysts said consumers couldn't expect interest rates to return to levels of this spring, when 30-year fixed-rate mortgages had fallen to as low as 4.8%, compared with 5.4% currently.
"For people who are thinking about refinancing, [the Fed statement] suggests rates aren't going back down. The Fed can't help you," said Mark Zandi, chief economist at Moody's Economy.com.
Analysts said the central bank's statement underscored how policymakers were trying to balance an economy that may be at a turning point.
Bond investors who were worried about inflation got ahead of themselves in hoping to see the Fed discuss how it might begin to pull back from its expansive policies, said Diane Swonk, chief economist at Mesirow Financial in Chicago.
"The markets are looking for something the Fed can't deliver right now," she said. "We're in a no man's land of stabilization."
She added: "The Fed certainly is going to do everything to keep interest rates low. That's the good news. The bad news is that the bond market is worried about interest rates, and people are going to pay the price of higher rates."
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don.lee@latimes.com
