The Federal Reserve surprised no one Wednesday when it released a statement holding the federal funds rate at the near-zero level Wednesday, but that doesn t mean it was an easy memo to write.

Market volatility and mixed signals on inflation and the pace of the economic growth left the Fed at a crossroads ahead of its policy decision. Signal too much and risk stalling the fragile recovery. Signal too little and gamble with inflation. Neither looked particularly responsible, and both left the Federal Open Market Committee open to criticism.

The verdict on the Fed s statement? Market observers say the FOMC likely did the best thing it could, at least as far the market is concerned.

The market wanted to hear no change in the statement at all, in that if they were to talk about an exit strategy, which would ultimately require rates moving back up, it would spur a rally in the dollar, says Marc Pado, U.S. market strategist at Cantor Fitzgerald. The net result could have been downward pressure on stocks, he says.

By keeping the key rate unchanged at the record-low range of 0% to 0.25% -- and reiterating that it will likely stay at a low level for an extended period the Fed staved off a potentially impulsive selloff.

The committee said it continues to anticipate that economic conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period, wording that has been closely watched in recent FOMC statements. However, in this statement, the FOMC specified that those economic conditions included low rates of resource utilization, subdued inflation trends, and stable inflation expectations.

This is pretty close to ideal, says Doug Roberts, chief investment strategist for ChannelCapitalResearch.com. The key is as long as unemployment is going up and inflation is subdued, it s too difficult to raise rates.

The Fed can t give any indication that its next move will be a rate hike, Cantor Fitzgerald s Pado said ahead of the release. What the market wants is stability right here, right now just let us breathe. It s still up significantly from the lows, we just want to know that the plan is in place, and that it s going to stay that way.

Is there any indication that a policy shift is coming soon? At this point, no, I don t think they should be looking at any changes, says Brian Bethune, chief U.S. financial economist at IHS Global Insight. There s a wide range of theses on what could potentially happen here in terms of the economy, but there s obviously some severe pressure points out there. The banking system is still attempting to absorb very large losses, the labor market is still backwards.

The Fed reiterated that economic activity is likely to remain weak for a time, although there were some positive tweaks to wording of the statement. For instance, the Fed said that household spending appears to be expanding rather than stabilizing, but noted that it remains constrained.

There was one other change. The Fed reiterated that it will purchase $1.25 trillion of agency mortgage backed securities but said it will purchase about $175 billion of agency debt, according to the statement. The latter was reduced by about $25 billion from the prior statement, but it is consistent with the recent path of purchases and reflects the limited availability of agency debt, according to the statement.

It might have been [a more significant move] had they not gone out of their way to explain why, which is there simply wasn t enough out there for them to meet the target, says Pado.

The Fed echoed that it will gradually slow the pace of its purchases of agency debt and agency mortgage-backed securities with purchases wrapping up by the end of the first quarter of 2010.