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Fed Chairman Ben BernankePAUL J. RICHARDS/AFP / Getty Images

The U.S. Federal Reserve has set the stage for easier monetary policy, saying the economy is growing too slowly to make a significant dent in the unemployment rate and prices are rising so slowly that deflation remains a present danger.

Fed chairman Ben Bernanke and the rest of the Federal Open Market Committee stopped short of changing current policy Tuesday at their latest meeting in Washington. They left the benchmark interest rate near zero and reiterated that they intend to keep it there for an "extended period." Policy makers also said they would continue to reinvest principal payments from its holdings of securities in new financial assets to keep downward pressure on market interest rates.

Still, the FOMC's determination that inflation is "somewhat below" the level that the Fed deems necessary to achieve its mandate of fostering "maximum employment" and price stability caused investors to bet that money will be even cheaper in the future, or at least remain inexpensive to borrow for a long time to come.

Stocks jumped after the announcement before paring those gains, ending the North American trading day little changed from Monday. Gold futures for December delivery surged to a record $1,290.40 (U.S.) an ounce, as some investors bet the Fed would ultimately take measures that would lead to inflation, making precious metals an attractive hedge against price increases, which would erode the value of assets such as bonds. The U.S. dollar and Treasury yields fell.

"The committee will continue to monitor the economic outlook and financial developments and is prepared to provide additional accommodation if needed to support the economic recovery and to return inflation, over time, to levels consistent with its mandate," the FOMC said in the synopsis of its deliberations.

Investors and analysts were looking for clarification on whether the Fed was leaning toward providing further stimulus after policy makers acknowledged last month that the recovery was losing steam.

The explicit mention that inflation is running outside the Fed's comfort zone was the biggest change from the FOMC's last policy statement on Aug. 10. By stating clearly that the Fed is at risk of falling short of its employment and price targets, the central bank's policy committee is signalling it will have little choice but to provide further stimulus unless economic growth soon speeds up.

"With substantial resource slack continuing to restrain cost pressures and longer-term inflation expectations stable, inflation is likely to remain subdued for some time before rising to levels the committee considers consistent with its mandate," the FOMC said.

Missing from the statement was any mention of how the Fed would go about offering further accommodation, an omission that could reflect divisions over how to proceed.

Federal Reserve Bank of Kansas City president Thomas Hoenig dissented for the sixth-straight meeting, matching a record for the most consecutive dissents at regular FOMC meetings since 1955, according to a tally by Bloomberg News. Mr. Hoenig continued to argue that a moderate recovery is entrenched and that further stimulus only risks sparking inflation.

Most investors and analysts predict any further Fed support will come in the form of quantitative easing, a strategy that would see the central bank attempt to lower longer-term interest rates by creating new money to buy Treasuries.

Quantitative easing was one of a handful of potential stimulus measures that Mr. Bernanke outlined in a speech last month. The Fed doubled its holdings of financial assets such as Treasuries and mortgage-backed securities to more than $2-trillion to lower borrowing costs after lowering its benchmark rate to zero. Economists at Goldman Sachs predicted last week that the Fed would resume a quantitative easing campaign in November or December, a sentiment echoed by several analysts.

"This is a big change," Ian Sheperdson, chief U.S. economist at research firm High Frequency Economics, said of the FOMC's decision to publish its worries about falling short of its mandate. "We are inclined to interpret this shift as setting the groundwork of QE part two."

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