Stocks Settle With Modest Gains

Updated from 4:20 p.m. EDT

Stocks in the U.S. ended higher Wednesday after the Federal Reserve voted to leave overnight bank lending rates unchanged, but the major averages finished the session below their best levels.

The Dow Jones Industrial Average, ahead by more than 100 points for a time, settled up just 4.4 points at 11,811.83, and the S&P 500 added 7.68 points to 1321.97. The Nasdaq was the best performer, up 32.98 points at 2401.26.

As expected, the Fed opted to leave its fed funds target interest rate unchanged after concluding a two-day meeting. The question surrounded what the Fed's policymaking arm, the Federal Open Market Committee, would offer in its assessment of the economy.

The central bank finds itself in a difficult spot, and it acknowledged as much in its statement that accompanied the rate decision. While downside risks to growth remain, they have been diminished, the Fed said, though it did express concern about the state of the labor market. At the same time, Fed officials believe inflationary pressures are a risk to the economy.

"Tight credit conditions, the ongoing housing contraction, and the rise in energy prices are likely to weigh on economic growth over the next few quarters," the Fed said. "The [FOMC] expects inflation to moderate later this year and next year. However, in light of the continued increases in the prices of energy and some other commodities and the elevated state of some indicators of inflation expectations, uncertainty about the inflation outlook remains high."

A months-long easing campaign in the wake of the credit crisis had dropped the overnight lending rate from 5.25% last summer. The Fed has been stuck between keeping the mortgage meltdown from dragging the economy into a recession and dealing with worries about resource-driven price inflation.

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