Federal Reserve hints at new stimulus

North American markets Tuesday shrugged off hints from the U.S. Federal Reserve that it was ready totake new steps to bolster the American economy.

The central bank's main policy-making group, the Federal Open Market Committee, said after its regular meetingit would continue to monitor the economic outlook and "is prepared to provide additional accommodation if needed to support the economic recovery."

That was widely seenas a sign the Fed is preparing to expand the use of its $2.3-trillion US balance sheet to more aggressively buy U.S. treasury bonds in a move to push interest rates lower to encourage bank lending to business and consumer spending.

The Fed had a similar bond-buying program in place earlier this year.

Stocks, which had been in a holding pattern for much of the trading session, ended the day little changed.

The Toronto Stock Exchange's benchmark S&P/TSX composite index slipped 63.94 points, or 0.5 per cent, to 12,170.57.

In New York, the Dow Jones industrial average was up 7.41, or 0.07 per cent, at 10,761.03. The S&P 500 slipped 2.93 points, or 0.3 per cent, to 1,139.78 while the Nasdaq composite wasdown 6.48, or 0.28 per cent, at 2,349.35.

Goldfutures surged as much as 0.8 per cent to $1,290.40 US an ounce after the Fed's statement, butthe widely traded December contract finished with a loss, down $6.50 to $1,274.30.

As expected, the FOMCleft its benchmarkfederal funds rate unchanged. That rate has been held within the range of 0.0 to 0.25 per cent since December 2008.

On Aug. 27, Fed chairman Ben Bernanke said the bank would act if the economic outlook were to "deteriorate significantly," and if the country seemed headed for a bout of deflation.

Deflation is a destabilizing drop in wages, prices of goods and services, and the value of stocks, homes and other assets.

Bernankedid not elaborate on which economic indicators, such as unemployment or economic growth, it would focus on.

Inflation targeted

Michael Gregory, senior economist with BMO Capital Markets, said the only factor mentioned in Tuesday's commentary wasinflation.

"As such, the case for [large-scale purchases of federal debt by the Fed]would appear to hinge on inflation moving even further below current levels," he said in a commentary.

One FOMC member, Thomas M. Hoenig, the president of the Federal Reserve Bank of Kansas City, once again repeated his disagreement with the committee's pledge to keep rates low for an extended period, on the grounds it risked sparking inflation.