U.S. stocks extended gains and bond yields fell as markets got what they were hoping for, said Mohamed El-Erian, chief economic adviser at Allianz in Newport Beach, California.
Citing rising uncertainty about the U.S. economic outlook, Fed Chairman Jerome Powell said the case for raising rates had "weakened" and, in a statement, the United States central bank dropped its earlier expectation for "some further" tightening. Asked what would prompt another rate hike, Powell said: "I would want to see a need for further rate increases, and for me, a big part of that would be inflation".
The Dow Jones Industrial Average added about 170 points to its afternoon gain after the Fed released its statement. The S&P 500 index was up 41.05 points at 2,681.05, while the Nasdaq composite was up 154.79 points at 7,183.08.
US stock markets extended their gains following the Fed's statement, and bond yields dropped as investors gauged the language adjustment as signaling a low probability of additional rate hikes any time soon. In a separate special statement, the Fed said it's "prepared to adjust any of the details for completing balance sheet normalization in light of economic and financial developments". "The market will read this as they're done with the hiking cycle and that a halting in the balance sheet runoff is more likely than another rate hike". But even modest increases have not been embraced by investors, with stocks tumbling in anticipation of a raise last month that boosted rates 0.25 percent to a range between 2.25 and 2.5 percent.
Of course, the Fed didn't specifically say that its campaign to bring interest rates back to more normal levels was over.
So what has changed since December to change the Fed's mind on rates?
Meanwhile, Chinese negotiators are meeting USA counterparts in Washington for talks to resolve the ongoing trade dispute.
The euro gained 0.39 percent to $1.1475.
Market watchers were surprised by the Fed's latest signals on its balance-sheet unwind, which suggests the central bank is closer to completion than previously expected.
Those words will likely be welcome by President Trump, who had repeatedly blasted the Fed - and Powell by name - as it raised rates four times past year.
Microsoft Corp declined 1.65 percent after its Azure cloud computing sales grew at a slower pace than a year earlier, although its quarterly results and forecast topped Wall Street estimates.
He also said that ongoing negotiations between the USA and its trading partners may weigh on businesses more than the tariffs themselves.