Since the beginning of the year, the value of US stocks has increased by $2.1 trillion, or 7.74%, according to Wilshire Associates.
"The case for raising rates has decreased somewhat", Fed chairman Jerome Powell said at a news conference following the rate announcement. Policy makers also omitted a line saying risks to the outlook are "roughly balanced".
Powell has been invoking the word "patient" to describe the Fed's latest approach to rates increases.
Policy makers took "a step in a very dovish direction", said Brett Ryan, a USA economist at Deutsche Bank AG. Amid the crosscurrents of a strong US economy and some uncertainties overseas, a "common-sense" approach means the Fed will patiently await "greater clarity" and rely on economic data to guide policy, Powell said.
On the balance sheet, Powell said the normalisation process will be completed "sooner and with a larger balance sheet" than previous estimates.
Finishing up their first two-day meeting of the year, Fed officials said they voted to keep their benchmark rate steady and said they would sit back and assess a broad range of economic data before deciding whether rates needed to move higher or lower.
"It's hard to read this as anything other than the Fed has capitulated to the market", said Michael Gapen, chief USA economist at Barclays Plc. And by indicating flexibility on the runoff in its balance sheet, the Fed implicitly acknowledged the impact the reduction of its government securities' holdings was having on the private credit and equity markets, and by extension, on the economy.
The language used in the FOMC statement, keeping the benchmark interest rate in a range of 2.25 percent to 2.5 percent, reflected the increasing sense that the U.S. economy may have peaked. CBC News will stream the press conference live.
Some analysts take the Fed's latest comments to mean that the body will not raise rates in March either. Household spending has continued to grow strongly, while growth of business fixed investment has moderated from its rapid pace earlier a year ago.
"The Committee continues to view sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee's symmetric 2 percent objective as the most likely outcomes", the statement said. There was no reference to the shutdown. For traders, the Fed's line that it's "prepared to adjust any of the details for completing balance sheet normalisation" confirmed a shift in a policy unwind that's roiled markets.
As result of the Fed's reversal, stocks extended their rally after the FOMC's statement and Fed Chairman Jerome Powell's press conference Wednesday afternoon, with the major US averages ending up 1.8%-2.2%.