The U.S. Federal Reserve gave a lukewarm economic assessment on Wednesday despite recent signs the recovery was strengthening, saying high unemployment still justified its $600 billion bond-buying program.

KEY POINTS: * In a statement following its policy-setting meeting, the central bank also said measures of underlying inflation were somewhat low although it acknowledged rising commodity prices that have fueled global inflation worries. * It left its benchmark interest rate unchanged near zero, as was widely expected, and reiterated that rates would likely stay ultra-low for an extended period. None of the Fed officials dissented. * The economic recovery is continuing, though at a rate that has been insufficient to bring about a significant improvement in labor market conditions, the Fed said.

COMMENTS:

MARK VITNER, SENIOR ECONOMIST, WELLS FARGO SECURITIES, CHARLOTTE, NORTH CAROLINA:

It is not much of a change, and it kind of struck me how right they are about how the pace of economic recovery has not been sufficient to bring about a change in labor market conditions.

JOE SALUZZI, CO-MANAGER OF TRADING, THEMIS TRADING, CHATHAM, NEW JERSEY:

I'm reading it as nothing new. I'm watching gold, more importantly, and gold is starting to tick up on it which tells me more the Fed is not going to stop, they will continue to deflate the dollar and it will continue forever. There is no indication that they will ever stop. So equities should love it, asset prices will go higher. But there is nothing new here.

These guys have the best job in the world -- every two months, a month or so you come out, you do nothing, you make your announcement, you keep the same thing as last month, you go back to sleep for another month. They have the best job in the world and everybody thinks you are the Pope-it's ridiculous. Based on that I am watching gold, that is my tell here, and it's looks like it is ticking higher.

OMER ESINER, CHIEF MARKET ANALYST, COMMONWEALTH FOREIGN EXCHANGE, WASHINGTON:

The statement doesn't acknowledge the uptick in U.S. economic data that we've seen over recent weeks to the extent that we had expected that it would. The Fed continues to focus on the painfully high unemployment rate and the fact that growth has not picked up to the degree that will bring down that rate. Ultimately, it sounds more or less a status quo type of statement, which suggests they're in little hurry to begin reducing the pace or the scope of their asset purchases.

Friday's GDP data is going to be pretty important. But for the near term, the dollar is unlikely to receive a meaningful bid given the already negative trend.

TOM PORCELLI, CHIEF U.S. ECONOMIST, RBC CAPITAL MARKETS, NEW YORK, NEW YORK:

There were really no meaningful changes in the statement. You could say they modestly marked up their economic assessment of stress, but only at the margin. They did note commodity prices, but immediately pointed out that longer-term inflation is stable. At the end of the day the statement was fairly status quo.

SEAN HYMAN, INVESTMENT DIRECTOR OF WORLD CURRENCY WATCH, DALLAS, TEXAS:

Everything stayed the same. Right now, very little change but the dollar will rally. Rates will eventually have to rise but not before unemployment rates come down a little bit. The Fed will keep rates low for an extended period and so I think the dollar will end up rallying anyway as a lot of the trouble in the euro zone will bring down the euro and push up the dollar against it. The dollar will rally over the next couple of months at least but latter half of 2011 will see the dollar index head toward all new lows.

PAUL RADEKE, VICE PRESIDENT, KDV WEALTH MANAGEMENT, MINNEAPOLIS:

This isn't a surprise to anyone in the industry, but if they are still going forwards with QE2, the area that is probably going to be affected the most is the financials and their growth forecast. It could hurt the forecasts negatively, because they'll have to change their lending standards if QE2 forces them to lend out money rather than holding it. One thing we're going to look at is if there are any revisions to bank forecasts or if this is mentioned in the conference calls for any banks that have yet to report.

FRANK HSU, DIRECTOR OF GLOBAL FIXED INCOME, FIMAT, NEW YORK

Basically, as the market expected, the Fed maintained the status quo. The economy is improving, but nothing enough to alter the Fed's super-easy monetary policy. We don't see any fundamental change in terms of the quantitative easing, the program will continue.

The Treasury market was down much more. Now the market

has recovered a little. The market was worried the Fed may say something different so now the market is relieved.

DAVID SLOAN, ECONOMIST, IFR ECONOMICS, A UNIT OF THOMSON REUTERS:

Positive fine-tunings note that household spending growth picked up late last year, but the restraints on spending listed in December remain the same. Rising business investment no longer has the caveat of slower than early in 2010, while rising commodity prices are noted, though the statement still notes that measures of underlying inflation have been trending downward.

The continuing recovery is seen at a pace insufficient to bring a significant improvement in labor market conditions rather than insufficient to bring down unemployment, a nod to the lower December unemployment rate while recognizing the disappointing payroll.

MARKET REACTION: STOCKS: U.S. stock indexes held gains BONDS: U.S. Treasury bond prices trimmed losses FOREX: The dollar pared gains against the euro and yen