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-- The Federal Reserve concluded its two-day meeting on Wednesday by announcing its policies will remain unchanged.

Recovery is coming, says the Fed, but it's still too soon to start unraveling its unprecedented programs intended to help the economy.

This week's meeting of the Fed's Open Market Committee is the first since April.

Although stocks are much higher than their lows for the year in March, the overall state of the economy is, at best, very mixed.

There's some evidence things are getting better--or getting worse much more slowly--enough evidence that new programs are unlikely, but not enough evidence to start raising rates.Article Controlsemailprintreprintnewslettercommentssharedel.icio.usDigg It!yahooFacebookTwitterrssThe Fed acknowledged the improvements: ''The pace of economic contraction is slowing.

Conditions in financial markets have generally improved in recent months,'' said the Fed.

''Household spending has shown further signs of stabilizing but remains constrained by ongoing job losses, lower housing wealth and tight credit.

Businesses are cutting back on fixed investment and staffing but appear to be making progress in bringing inventory stocks into better alignment with sales.''But a dark spot continues to plague the brightening economic glow; unemployment keeps rising.

When the FOMC met in April, the unemployment rate was 8.5%.

Since then, it has risen to 9.4%, and economists can't pin down when it might turn around and begin falling.

The Federal Reserve has a dual mandate: to keep inflation and unemployment low.

Clearly, though some economic indicators have improved, unemployment isn't one of them.

In its previous two meetings, the Fed had used exactly the same language to describe its inflation outlook: "In light of increasing economic slack here and abroad, the committee expects that inflation will remain subdued.

Moreover, the committee sees some risk that inflation could persist for a time below rates that best foster economic growth and price stability in the longer term."By "slack," the Fed refers to those huge levels of unemployment and the accompanying reduction in economic activity.

Though gas prices have been creeping back up, inflation has remained subdued in line with the Fed's views.

(See "Inflation Stays Tame, But Gas Prices A Worry.")Read All CommentsThe Fed acknowledges this, saying, ''The prices of energy and other commodities have risen of late.

However, substantial resource slack is likely to dampen cost pressures, and the Committee expects that inflation will remain subdued for some time.'' The Fed, however, dropped its earlier warning that inflation could stay too low, an indication that prospects of economic growth are taming the threat of deflation.The Fed reaffirmed its policy to keep interest rates as low as possible.

The Open Market Committee has maintained its target rate between 0% and 0.25% since December and continues to say it will be necessary to keep the rate low "for an extended period."Complicating the Fed's task, however, are rising mortgage rates and Treasury yields.

In an effort to revive the housing sector, the Federal Reserve has become a major source of funds for the mortgage market, with plans announced to buy $1.25 trillion of mortgage-backed securities and $200 billion of debt issued by government-backed agencies like Fannie Mae ( FNM - news - people ) and Freddie Mac ( FRE - news - people ).Thus far, the Federal Reserve has purchased $455 billion of mortgage-backed securities, leaving it with $795 billion to purchase.

This huge amount of demand ought to keep mortgage rates low, but instead they have climbed to around 5.5%, from under 5% a month ago, according to

Rising mortgage rates make it more difficult to afford a house, and thus may delay home prices from finding a floor.The Federal Reserve previously announced a $300 billion plan to purchase debt from the U.S.

Treasury through the summer.

When first announced, this drove down the yield on 10-year Treasury notes to 2.5%.

The yield has since risen to 3.7%.

Since much lending is benchmarked to Treasury rates, the cost of borrowing is increasing across the economy.

If the trend continues, it could halt or hinder recovery.Between the Treasuries, mortgage-backed securities and government agency debt, the Federal Reserve has already committed to $1.75 trillion in purchases, but has yet to actually complete half that volume.

The Fed announced no changes to these plans.At some point, the Fed will have to start discussing, or at least hinting at, its exit strategy, but if it made a big announcement on Wednesday about recovery or inflation, after being so dour in its most recent statements, it could have spooked the markets.

For now, the Fed is staying the course.
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