The Federal Reserve Open Market Committee Wednesday afternoon said it believes the economy is improving but that it would hold its target for the key federal funds rate between 0% and 0.25% and keep it at "exceptionally low levels" for an "extended period." It also said it would wind down its $1.45 trillion program to purchase mortgage-backed securities and agency debt by the end of first quarter, 2010.

The FOMC, ending its two-day September meeting in Washington, said in its statement, "Information received since ... August suggests that economic activity has picked up following its severe downturn. Conditions in financial markets have improved further, and activity in the housing sector has increased."

It added, however, that "economic activity is likely to remain weak for a time," citing job losses, tight credit and reduced housing wealth. It also said it expected inflation "will remain subdued for some time."

The committee also said it would extend its program to aid the mortgage market by buying mortgage backed securities and agency debt but that it would end as the first quarter of next year closes. "The committee will gradually slow the pace of these purchases in order to promote a smooth transition in markets," the statement said.

The Fed said it will end its purchases of $300 billion in Treasury securities by the end October, as previously announced.

The committee vote on the action was unanimous.