The Fed had raised rates four times a year ago and a total of nine times since 2015. Furthermore, Federal Reserve Chairman Jerome Powell said he expects a "slowdown" but not a recession.
In support of the goals of fostering maximum employment and price stability, the Federal Open Market Committee (FOMC) chose to maintain the target range for the federal funds rate at 2.25 percent to 2.5 percent, the central bank said in a statement.
After a two-day policy meeting that sealed the switch to a less aggressive posture, the Fed also said it would slow the monthly reduction of its holdings of Treasury bonds from up to$30 billion to up to $15 billion beginning in May. Traders took that dovish shift as their cue to dig into positions for a Fed easing cycle, pricing in a cut by the end of 2020 and a one-in-two chance of a reduction as soon as this year.
The Federal Reserve's monetary policy decision is expected to weigh on the DXY Index and prop up EM Asian currencies amid global reflation policies, particularly if the United States and China agree to a trade deal in April, according to the latest research report from Scotiabank. Additionally, the central bank also expects the US economy to expand at 2.1 percent this year, below its previous projections.
Combined, the moves signal no major increases in borrowing rates for consumers and businesses.
The "effective" or average fed funds rate has been running at 2.40 percent since mid-December, which is at parity with the interest rate on reserves.More news: Disney closes $A100b 21st Century Fox deal
"The fed funds futures market is assigning a 47.8 percent probability of at least one rate cut by January 29, 2020", according to the CME's FedWatch tool.
Powell said the individual FOMC participants' views of the US economy "point to a modest slowdown with overall conditions remaining favorable" this year.
President Donald Trump had called the December rate rise by the supposedly independent Federal Reserve wrong-headed, with suggestions he was contemplating trying to fire Chairman Jerome Powell, who had been his choice to lead the central bank.
Powell tried to reassure markets, saying "economical fundamentals are still strong", but there were headwinds to growth in Europe and Asia: "We see a situation where the European economy has slowed substantially", he said, adding that China's economy has also weakened. The Fed also said that a slowdown in the global economy also contributed to its decision to stop its rate hikes in 2019.
"We think the Fed's forecasts are still too upbeat", said Michael Pearce, senior USA economist at Capital Economics, saying he thinks sluggish growth will lead the Fed to start cutting rates early next year.
Fed policymakers also said that they expect the USA unemployment rate, now at 3.8 percent, to tick down to 3.7 percent by year-end.