WASHINGTON (MarketWatch) — The Federal Reserve on Wednesday pledged to hold interest rates low until late 2014, a move that surprised markets and showed the central bank is still worried that economic growth is at risk of faltering.

The new commitment extends the prior statement that economic conditions were likely to keep rates at the historic low range of 0% to 0.25% until at least mid-2013.

The Fed opened a new era of transparency, releasing for the first time the projected path of rates by its 17 members and set a specific inflation goal of 2%. But it was extending the timing of the first rate move that overshadowed all the moves.

Tom Porcelli, chief U.S. economist at RBC Capital Markets, said he was “completely shocked” by the change to late 2014. “This drives home one important fact: The Fed is scared,” he wrote in a note to clients.

At his press conference, Federal Reserve Chairman Ben Bernanke continued to describe the recovery as “fragile.”

He said the weak housing market was holding back growth and blunting the Fed’s efforts to stimulate the recovery.

Asked if he was worried that the late 2014 commitment would signal concern about the recovery, Bernanke replied that any worry about being too downbeat “was outweighed by the need to maintain accommodative financial conditions.”

Many economists had thought the Fed was going to try to wriggle out of setting a calendar date for the first hike, instead pointing to economic conditions.

Jim Glassman, economist at J.P. Morgan Chase, speculated that the Fed may have been specific about its rate commitment in place of another round of quantitative easing. Bond purchases have been unpopular with many investors, who believe that it will eventually lead to higher inflation.

This unease has been captured in Republican presidential-primary debates, where Bernanke has been accused of debasing the currency. Bernanke said he would not respond to political rhetoric or discuss whether he would resign if the Republicans captured the White House in November.

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In making the new projection, the central bank said subdued inflation was the key to its forecast. Another factor was the high unemployment rate.

Thomas Simons, a government-debt economist at Jefferies Group Inc., said the Fed “one-upped” the market expectations that the first rate hike would take place in early 2014.

After the decision, Treasurys TMUBMUSD10Y, 0.653% and gold futures GC2G extended gains. The dollar EURUSD, -0.01% turned down slightly and stocks DJIA, -0.47% recovered to close higher. Read more in Market Snapshot.

Robert Brusca, chief economist at FAO Economics, said he did not understand the Fed’s decision to push out the low-rate pledge given the improving economic data over the past six weeks.

The Fed seems skeptical and wary of the improving economy, he noted. “In some sense, this undermines the economic performance rather than reinforce it,” according to Brusca.

The biggest change in the statement was the Fed’s description of inflation. The central bank described inflation has “subdued in recent months. In December, the statement only said that inflation had moderated.

The Fed said the economy was expanding at a moderate pace. While the labor market has improved, the unemployment rate remains elevated.

“To support a stronger economic recovery and help ensure that inflation, over time, is at levels consistent with the dual mandate, the FOMC expects to maintain a highly accommodative stance for monetary policy,” the statement said.

There was one dissent. Richmond Federal Reserve Bank President Jeffrey Lacker wanted to omit the description of the time period “over which economic conditions are likely to warrant exceptionally low levels of the federal funds rate.”

Inflation goal

The FOMC set its long-term inflation goal at 2%, as measured by the annual change in the price index for personal-consumption expenditures.

That’s the most explicit the Fed has been in terms of setting an inflation target.

According to the new projections, 11 of the 17 FOMC participants believe a rate hike would not be appropriate before 2014.

Three members want the first hike by this year, three want them in 2013, five want them in 2014, four more in 2015 and two in 2016.

The Fed also forecasts GDP growth between 2.2% and 2.7% this year, an unemployment rate between 8.2% and 8.5% and PCE inflation between 1.4% and 1.8%; the growth forecast is down from November levels, as are the jobless and inflation views.

The central bank sees longer-term rates reaching between 4% and 4.5%.

The Fed made no changes to its Operation Twist plan, designed to put pressure on long-term rates by selling $400 billion of short-term debt and buying longer-term securities to lengthen the average maturity of securities on its balance sheet.

The consensus of Fed watchers believe it will soon launch another round of asset purchases with printed money, or quantitative easing. Some economists think this QE3 could come as early as the next FOMC meeting on March 13.

Simons of Jeffreries said the Fed’s statement was consistent with a QE3 launch in the middle of the year.

At his press conference, Bernanke said the question of QE remained “on the table,” and that the Fed was “prepared to take further steps if we see that the recovery is faltering or if inflation is not moving towards target.”