The Federal Reserve (Fed) and its president Ben Bernanke comforted many investors on Wednesday while they momentarily shifted their attention away from Cyprus and the UK's budget details.

The Fed said that the US economy remains too weak to pull back on its $85bn per month stimulus package.

Leading up to the monetary policy decision and Bernanke's press conference, many market participants wanted to be sure that markets would continue to benefit from the constant liquidity that the Fed pumps into the economy.

While the latest economic data points to an improved US economic outlook, the conundrum was that the 'good news' could have prompted the Fed to cut off stimulus measures earlier than expected.

However, the Fed reiterated its commitment to buy bonds and mortgage-backed securities until the jobs market improves substantially.

"The committee will continue its purchases of Treasury and agency mortgage-backed securities, and employ its other policy tools as appropriate, until the outlook for the labor market has improved substantially in a context of price stability," the US central bank said.

Although Bernanke took note of the recent improvement in the jobs data, he said that the "unemployment rate remains elevated". He also pointed to the downside risks posed by government spending cuts.

"The housing sector has strengthened further, but fiscal policy has become more restrictive," the Fed said.

"There's a general sense that fiscal policy will take a bite out of growth this spring and summer," said Mark Zandi, chief economist for Moody's Analytics.

"I think they're very nervous that as spending cuts take hold, the numbers are going to look softer."

The Fed also updated its economic forecasts, although revisions were very small. The consensus appears to be that the new projections do not signal any changes to monetary policy.

The Fed lowered its economic growth forecast for 2012 from a central tendency of 2.3-3.0% to 2.3-2.8% and lowered its projections for unemployment from 7.4-7.7% to 7.3-7.5%. The Fed still does not see unemployment falling below 6.5% until 2015 while inflation is expected to remain subdued.

The Fed has suggested it would not raise rates until the rate fell below 6.5%.

In regards to winding down quantitative easing, Bernanke suggested that it would not be tied to a single criteria. Meanwhile, other Fed members have suggested looking for job growth of about 200,000 for six straight months or the number of employees voluntarily quitting.

Michael Gapen of Barclays Research said: "We interpret this as suggesting the FOMC is willing to keep the current accommodative policy environment in place despite the recent improvement in payroll employment. The main change in the committee's assessment of the economy came in the area of fiscal policy, where the FOMC said 'fiscal policy has become somewhat more restrictive'."

JP

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