The US Federal Reserve has signalled there will be no interest rate hikes in 2019, citing a slowdown in economic growth.
The announcement by the country’s central bank marked a dramatic climbdown from its expectations at the end of 2018, when it had forecast two rate rises this year.
The Fed first admitted in January that its gradual path of rate increases was at risk as it noted “global economic and financial developments” – many related to the US trade war with China.
Following its latest two-day meeting, the bank’s federal open market committee said that while it was reiterating a “patient” approach and keeping its benchmark rate within its current range of 2.25% to 2.5%, it was acting now to hold down long-term interest rates and maintain demand for credit.
The Fed said it would slow the unwinding of its crisis-era $1.1tn (£830bn) asset purchase programme from May.
The monthly reduction of its holdings of Treasury bonds would fall from up to $30bn (£22.7bn) a month currently to up to $15bn (£11.3bn), the statement said.
It added that it planned to end the balance sheet Treasury bond reductions in September, with redemptions of mortgage-backed securities then being reinvested in Treasury bonds.
The Fed’s pause in credit tightening is a result of slowdowns in both the US and wider global economies – which was evident to market observers as well as policymakers when the bank last raised rates in December.
The Fed said it was expecting economic growth of 2.1% in 2019 – down from earlier estimates of 2.3%.
The dollar weakened by up to 0.6% against a basket of international currencies, including the pound, after the announcement while US stock markets pared losses.
At a news conference, the Fed’s chair Jay Powell said the US economy would feel the effects of slower growth abroad, particularly in Europe.
He told reporters potential risks included Brexit and the effects of the US-China trade war, but insisted that the extra tariffs imposed by China on US goods were having only a limited impact domestically.
Commenting on the investor reaction Joe Manimbo, senior market analyst at Western Union Business Solutions in Washington, told the Reuters news agency: “The Fed exceeded markets’ dovish expectations, which took a toll on the greenback.
“The Fed did a big about-face on policy. The fact that the Fed threw in the towel on a 2019 rate hike was particularly dovish.”