Fed gives green light to recovery

Ben Bernanke didn't say that the fragile recovery is expected to turn into a robust expansion, and few if any pundits anticipated such language. But for the first time in many Fed statements, policymakers acknowledged that "economic activity has picked up following its severe downturn."

And with "substantial resource slack likely to continue to dampen cost pressures and with longer-term inflation expectations stable, the Committee expects that inflation will remain subdued for some time," which is a clear signal that the FOMC won't be removing the massive amounts of stimulus that are supporting economic activity anytime soon.

But what the Fed did say is that it will slow its previously-announced purchases of agency-backed securities in order to promote a smooth transition in the financial markets because an abrupt end to such purchases could send bond prices much lower and force a spike in mortgage rates.

Since the housing recovery is critical to the economic recovery, the Fed would like to see mortgage rates stay near current levels. Coupled with the first-time home buyer tax credit and lower prices, the necessary ingredients are in place to further gains in housing sales and prices.