* Fed says economy on “firmer footing,” jobs improving
* Food, oil inflation likely to be “transitory”
* Will monitor inflation, expectations closely
* Unemployment remains high, housing weak (Updates with market close)
By Pedro da Costa and Mark Felsenthal
WASHINGTON, March 15 (Reuters) - The Federal Reserve said on Tuesday the U.S. recovery is gaining traction and inflation pressure from soaring energy costs should be short-lived, allowing it to maintain its heavy support for the economy.
The U.S. central bank decided unanimously to forge ahead with its $600 billion bond-buying plan despite a considerably more upbeat assessment of the economy and the job market
It made no mention of Japan, which is grappling with the aftermath of the country’s worst earthquake on record -- and struggling desperately to avert a nuclear disaster.
“The economic recovery is on a firmer footing, and overall conditions in the labor market appear to be improving gradually,” the Fed said in a post-meeting statement.
It was a much rosier outlook than the Fed had offered after its last meeting in January, when it characterized the recovery as still too weak to significantly bring down unemployment.
The statement also dropped a reference to economic progress being “disappointingly slow” and a list of roadblocks to consumer spending. In addition, it removed a passage stating that employers remained reluctant to hire.
“The Federal Reserve is setting the stage for an end to its aggressive monetary support for the U.S. economy,” said Augustine Faucher, director of macroeconomics at Moody’s Analytics. “The economic data have been stronger, markets are generally positive, and job growth is picking up.”
However, meeting as global stock markets plunged in the aftermath of the Japanese earthquake, policymakers noted U.S. unemployment remains high, underlying inflation low and the housing sector depressed.
The Fed reiterated a pledge to keep interest rates, currently near zero, at very low levels for an extended period. That puts it at odds with other prominent monetary authorities like the European Central Bank, which has signaled a rate hike could come next month.
U.S. stocks trimmed losses after the Fed decision, but still closed down more than 1 percent. The dollar held steady against a broad basket of major currencies, while U.S. government debt prices pared earlier gains. <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
Text of Fed’s statement: [FED/FOMC]
Snap Analysis on changes to statement: [ID:nN15246290]
Instant view: [ID:nN15261210]
For more stories on Fed policy, see [FED/AHEAD] ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
The Fed dedicated an unusually large portion of its statement to inflation concerns surrounding a recent spike in energy and food prices. It said it would monitor inflation and expectations for future prices closely, but added that the situation appears to be under control.
“Long-term inflation expectations have remained stable, and measures of underlying inflation have been subdued,” it said.
Since the Fed’s January meeting, the economy has continued to show signs of promise, with the unemployment falling to 8.9 percent in February from 9.8 percent in November.
Still, the pace of hiring suggests further progress will be painfully slow for the 8-million-plus Americans who lost their jobs during the economic slump of 2007-2009.
At the same time, higher gasoline costs have created fresh concerns for consumers, with a big hit to confidence this month raising concerns whether a recent spurt in consumer spending can be sustained.
The U.S. economy expanded at an annual rate of 2.8 percent in the fourth quarter, a respectable performance but a faster pace will likely be needed to make a further appreciable dent in unemployment.
After chopping overnight interest rates to near zero in December 2008, the Fed turned to buying mortgage and Treasury debt to keep long-term borrowing costs low and support the economy. In all, it has pledged to buy $2.3 trillion in debt.
The purchases have proven controversial, with domestic critics arguing the Fed is courting inflation while officials in emerging markets have accused the central bank of trying to boost U.S. exports by devaluing the dollar. (Reporting by Pedro Nicolaci da Costa; Editing by Kenneth Barry)