Federal Reserve officials held off from raising borrowing costsand scaled back forecasts for how high interest rates will risethis year, citing the potential impact of weaker global growth andfinancial-market turmoil on the U.S. economy.

The Federal Open Market Committee (FOMC) kept the target rangefor the benchmark federal funds rate at 0.25 percent to 0.5percent, the central bank said in a statement Wednesday following atwo-day meeting in Washington. The median of policy makers' updatedquarterly projections saw the rate at 0.875 percent at the end of2016, implying two quarter-point increases this year, down fromfour forecast in December.

“Thecommittee currently expects that, with gradual adjustments in thestance of monetary policy, economic activity will expand at amoderate pace and labor market indicators will continue tostrengthen,” the FOMC said. “However, global economic and financialdevelopments continue to pose risks.”

Kansas City Fed President Esther George dissented from thedecision, preferring a quarter-point rate increase.

Yields on Treasury securities fell following the Fed's actions,with the rate on the 10-year note dropping to 1.92 percent at 2:10p.m. in New York from 1.99 percent just before theannouncement.

'Dovish' Hold

“The tone of the FOMC statement and accompanying economicprojections was dovish,” Neil Dutta, head of U.S. economist atRenaissance Macro Research LLC in New York, said in a researchnote. The reference to global risks “pushes the Fed in the role ofthe world's central bank. In this role, the Fed needs to letinflation in the U.S. surge to offset disinflation in the rest ofthe world.”

Weaker-than-forecast global growth has clouded the U.S. outlookand led investors to expect a slower pace of tightening since theFed raised rates in December for the first time in almost a decade.Yellen said in February that market turbulence had “significantly”tightened financial conditions by pushing down stock prices,causing the dollar to strengthen and boosting some borrowingcosts.

“Economic activity has been expanding at a moderate pace,” withhousehold spending gaining amid “soft” company investment and netexports, the Fed said. While inflation has “picked up in recentmonths,” market-based measures of inflation compensation are stilllow, the central bank said.

The median of Fed officials' projections, known as the “dotplot,” saw the federal funds rate at 1.875 percent at the end of2017, compared with 2.375 percent forecast in December. Theend-2018 level fell to 3 percent, from 3.25 percent, with thelonger-run projection at 3.25 percent, down from 3.5 percent.

Policy makers maintained their projections on how soon inflationwill return to the Fed's 2 percent target, while cutting theirinflation forecast to 1.2 percent this year from 1.6 percent.Officials still see the preferred price gauge rising 1.9 percent in2017 and 2 percent in 2018.

Job Market

Officials maintained their forecast for a 4.7 percent U.S.unemployment rate in the fourth quarter of this year. The medianprojection for 2017 fell to 4.6 percent from 4.7 percent, and in2018 to 4.5 percent from 4.7 percent. The rate stood at 4.9 percentin February.

“A range of recent indicators, including strong job gains,points to additional strengthening of the labor market,” the FOMCsaid.

The Fed reiterated that the “stance of monetary policy remainsaccommodative, thereby supporting further improvement in labormarket conditions and a return to 2 percent inflation.”

Economists in a Bloomberg survey conducted earlier this monthput the probability of an April rate increase at 15 percent andchances of a June move at 42 percent. That compares withmarket-implied projections of 25 percent for April and 54 percentfor June, according to pricing in fed funds futures as ofTuesday.

Fed officials have differed publicly about economic prospects,with Governor Lael Brainard on March 7 arguing for patience intightening monetary policy while Vice Chairman Stanley Fischer onthe same day pointed to the “first stirrings” of inflation. Yellenand her colleagues have singled out uncertainty over China'soutlook as a risk to U.S. growth.

The domestic U.S. economy has mostly been solid, however.Payroll gains have averaged 235,000 over the last six months as thejobless rate matched the Fed's goal for maximum employment, thoughmeasures of long-term unemployment and wage growth suggest thelabor market still has room to grow.

Some progress has also been made on the inflation side of theFed's dual mandate. The personal consumption expenditures priceindex, which the Fed targets at 2 percent annual gains, rose 1.3percent in January from a year earlier, after 13 consecutive monthswith rises below 1 percent, owing to a slide in energy prices.

The separate consumer price index released Wednesday showedprices, excluding food and energy, rose by agreater-than-anticipated 0.3 percent in February from the previousmonth.

Oil prices have surged around 40 percent since mid-February,when the cost for a barrel of crude fell to about $26, the lowestsince 2003.

U.S. stock markets, which had slumped by more than 10 percent bymid-February from the start of the year, have also regained ground,with the Standard and Poor's 500 Index now down just 1.4 percentthis year through Tuesday. Meanwhile the dollar, whose strength in2015 hurt U.S. exports and dented growth, has slipped about 1.3percent against a broad basket of currencies since Dec. 31.

Aggressive Easing Abroad

The Fed's tightening bias contrasts with aggressive easingabroad. The European Central Bank unleashed another round ofunprecedented stimulus last week that included a cut in a keyinterest rate further below zero.

In Tokyo, the Bank of Japan held fire on further stimulusTuesday but laid the groundwork for additional easing after cuttingits deposit rate to minus 0.1 percent in January.

China's central bank cut the main interest rate to a record lowin six successive reductions through October, and recently madeanother reduction to the required-reserve ratio for majorbanks.

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