WASHINGTON (AP) -- The Federal Reserve assured consumers and businesses Wednesday that they'll be able to borrow cheaply well into the future.
The Fed said it's unlikely to raise its benchmark interest rate before late 2014, extending its time frame by at least a year and a half. The Fed said record-low rates are still needed to help boost an improving but still sluggish economy.
Stocks, which had traded lower all day, quickly recovered their losses. The Dow Jones industrial average, which had been down about 60 points before the announcement, was up just three points shortly after it.
The central bank has kept its key interest rate at a record low near zero for three years. Later Wednesday, the Fed will release its quarterly economic forecasts. For the first time, those forecasts will show when policy members expect the first increase in the benchmark interest rate.
The Fed said in a statement after its two-day policy meeting that the economy is growing moderately, despite some slowing in global growth. It held off on any other new steps to boost the economy.
The statement was approved on a 9-1 vote. Jeffrey Lacker, president of the Richmond regional Fed bank, dissented, saying he objected to the new time frame for the next rate increase.
The extended timeframe 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.
Fed Chairman Ben Bernanke will discuss the Fed's forecasts and Fed policy at a news conference later.
Beyond the adjusted outlook for interest rates, Wednesday's statement tracked closely to the Fed's previous comments about economic conditions.
The central bank used the same language in describing Europe's debt problems and the impact on the world economy.
The economy is looking a little better, according to recent private and government data. Companies are hiring more, the stock market is rising, factories are busy and more people are buying cars. Even the home market is showing slight gains after three dismal years
Still, the threat of a recession in Europe is likely to drag on the global economy. And another year of weak wage gains in the United States could force consumers to pull back on spending, which would slow growth.
The Fed has taken previous steps to strengthen the economy, including purchases of $2 trillion in government bonds and mortgage-backed securities to try to cut long-term rates and ease borrowing costs.
The idea behind the Fed's two rounds of bond buying was to drive down rates to embolden consumers and businesses to borrow and spend more. Lower yields on bonds also encourage investors to shift money into stocks, which can boost wealth and spur more spending.
Some Fed officials have resisted further bond buying for fear it would raise the risk of high inflation later. And many doubt it would help much since Treasury yields are already near historic lows. But Bernanke and other members have left the door open to further action if they think the economy needs it.
The Fed said it would keep its holdings of Treasury securities and mortgage-backed bonds at record levels and continue a program to further drive long-term rates lower by selling shorter-term securities and buying longer-term bonds.
The Fed announced no further bond buying efforts. But it held out the possibility of doing more. It said it was prepared to adjust its "holdings as appropriate to promote a stronger economic recovery in the context of price stability."
Many economists believe the Fed will launch a third round of bond buying, possibly as soon as its next meeting in March, especially if Europe's debt problems pose a bigger risk to the U.S. economy.