The Federal Reserve said Wednesday it would keep its foot pressed firmly on the economic stimulus gas pedal.
The move surprised many who thought the central bank would cut back on its $85 billion a month priming of the economy by between $5 billion to $20 billion.
Markets have been expecting the Fed to "taper" ever since its policy-setting Open Markets Committee began dropping hints about the gradual decrease of monthly asset purchases aimed at keeping rates at historic lows.
"This is incredibly wimpy," David Kelly, chief market strategist at Morgan Stanley, told CNBC.
But the Fed said it wanted more time to scrutinize the economy, which has been sending out mixed signals recently.
"Taking into account the extent of federal fiscal retrenchment, the Committee sees the improvement in economic activity and labor market conditions since it began its asset purchase program a year ago as consistent with growing underlying strength in the broader economy. However, the Committee decided to await more evidence that progress will be sustained before adjusting the pace of its purchases," the Fed said in a statement after a two-day meeting to discuss the economy and interest rates.
The Fed said, as it has for several past statements, that the economy continues to expand at a moderate pace. It said unemployment remains high, even though there are some signs of improvement.
"Household spending and business fixed investment advanced, and the housing sector has been strengthening, but mortgage rates have risen further and fiscal policy is restraining economic growth," the Fed's statement said.
Stocks surged on the news, which meant that businesses and consumers could continue to borrow at historically low rates.
In a news conference after the statement was released, Federal Reserve Chairman Ben Bernanke said its possible that interest rates would remain unchanged until the jobless rate, at 7.3 percent at the latest reading, falls "considerably below" 6.5 percent.
Bernanke said that while the economy is growing, fiscal tightening in Washington in the form of sequestration spending cuts remain a significant obstacle.
"The downside risks to growth have diminished over the past year," Bernanke said at a news conference. "However the tightening of financial conditions in recent months, if sustained, could slow the pace of improvement in the economy and labor market."
He said the Fed would taper "at some point, possibly later this year," a contrast to his statement in June that a reduction would almost certainly happen later this year, with a wrap-up by mid-2014.
The Fed's statement served both as a notice that the central bank remains in the easing game, and that it is unmoved by a recovery that has seen auto and home sales surge and employment show slow but steady growth.
The Fed also downgraded its outlook for the economy.
Officials said gross domestic product growth will be in the 2 percent to 2.3 percent range this year, down from 2.3 percent to 2.6 percent forecast earlier this year. It also cut the 2014 forecast to 2.9 percent to 3.1 percent from 3.0 percent to 3.5 percent.
"Surprising news today but the Fed clearly is concerned about lower labor participation rates and the real estate sector," said Michael Yoshikami, CEO of Destination Wealth Management. "Looks like they are determined to avoid premature celebrations that all is well. (Chairman Ben) Bernanke is drawing from his academic background and lessons from the Great Depression."
Speculation has run rampant about the future leadership of the Fed, with Bernanke's term expiring in January.
(Read more: New Fed chief, whoever it may be, faces trial by fire)
Former White House economic adviser Larry Summers recently withdrew his name from consideration, leading many market observers to assume San Francisco Fed President Janet Yellen was next in line.
Asked to comment on his own future, Bernanke said, "Today I want to focus on monetary policy and I prefer not to comment on my own plans."