Federal Reserve officials scaled back their projected interest-rate increases this year to zero and said they would end the drawdown of the central bank's bond holdings in September after holding policy steady on Wednesday.
The median rate projection of Fed officials compared with two hikes in the December forecasts, which spooked investors at the time.
In its statement following a two-day meeting in Washington, the Federal Open Market Committee (FOMC) repeated January language that it will be "patient" amid "global economic and financial developments and muted inflation pressures."
The Fed's signal that it will keep interest rates on hold for the full year reflects concerns that economic growth is slowing, lower energy prices are weighing on inflation and risks from abroad are dimming the outlook.
The projections go further than the one-hike forecast analysts had expected in a Bloomberg survey.
"This was definitely a dovish outcome and even a bit of a surprise," said Ben Emons, managing director of global macro strategy at Medley Global Advisors in New York. "The Fed took out the entire rate hike scenario for this year."
Reaction in markets confirmed the dovish interpretation. Stocks pared losses, the dollar turned lower and Treasuries rallied. Traders lifted the odds of the Fed cutting rates.
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In a separate statement Wednesday, the Fed said it would start slowing the shrinking of its balance sheet in May and halt the drawdown altogether at the end of September.
After that, the Fed will likely hold the size of the portfolio "roughly constant for a time," which will allow reserve balances to gradually decline.
Beginning in October, the Fed will roll its maturing holdings of mortgage-backed securities into Treasuries, using a cap of $20bn per month.
The initial investment in new Treasury maturities will "roughly match the maturity composition of Treasury securities outstanding," the Fed said. The central bank is still deliberating the longer-run composition of its portfolio and said "limited sales of agency MBS might be warranted in the longer run."
The 10-0 decision held the target range of the federal funds rate steady at 2.25% to 2.5%.
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Wednesday marked policy makers' first opportunity since December to lay out in quarterly forecasts the extent to which their projections for hikes have changed.
Economic growth "has slowed from its solid rate in the fourth quarter," the FOMC said in its statement. "Job gains have been solid, on average, in recent months" despite "little changed" payrolls in February.
"Overall inflation has declined," though excluding food and energy it "remains near 2%," the central bank said.
Policy makers also lowered economic-growth projections for this year and next, giving a 2.1% median estimate for 2019, a full percentage point below last year's pace.
The less upbeat assessment in the statement compared with January's language saying growth was solid, consumer spending was strong and business investment had moderated.
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The Fed formally adopted its 2% inflation goal in 2012, and price gains have mostly come in on the low side since then.
Policy makers slightly lowered their expectations for inflation relative to their last set of economic projections. After 1.8% headline inflation in 2019, they see price gains of 2% on both the main and core indexes for the next two years, eliminating the overshoot they had previously projected.
Officials see unemployment at 3.7% by year-end, higher than their previous estimate of 3.5%.
At the same time, they lowered their long-run jobless rate projection to 4.3%, suggesting the labour market is running less hot than they previously thought.