Markets, which have been anxious about higher rates, jumped on the news.
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.
The central bank also said it would be ready to alter the balance sheet's size and composition if the economy warrants a looser monetary policy than the federal funds could achieve on its own.
Before raising rates again, Powell said, he would need to see rising inflation.
The dispute also paused the flow of key federal economic reports, including readings on overall US growth, retail sales and factory order.
Powell, speaking to reporters after the end of the Fed's latest two-day policy meeting, said the central bank would likely stop trimming its $4.1 trillion balance sheet sooner, leaving it with more assets than previously expected.
Fed Chairman Jerome Powell is scheduled to hold a press conference at 2:30 p.m. ET.
Officials at the United States central bank cited muted inflation and "global economic and financial developments" to explain the shift.
President Trump, meanwhile, has been an outspoken critic of the Fed's interest rate hikes.
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It said USA economic activity was rising at a solid rate, as it maintained the target range for federal funds rate at 2.25-2.5 per cent. On Wednesday, the statement said "market-based measures of inflation compensation have moved lower in recent months".
Following the Fed statement, TD Securities has now changed its Fed forecast, TD's senior FX strategist, Mazen Issa, said.
The central bank has been under pressure to slow its pace of rate hikes in light of weakening economic growth overseas and the US trade dispute with China.
Powell also said that financial conditions - stock prices and borrowing rates, for example - had become less friendly to growth.
"At such times, common-sense risk management suggests patiently awaiting greater clarity, an approach that has served policymakers well in the past", he said. He didn't comment on the Fed's actions on Wednesday, but he did tweet "Dow just broke 25,000".
U.S. West Texas Intermediate (WTI) crude futures were at $54.47 per barrel, up 24 cents, or 0.4 percent, from their last settlement. The Nasdaq gained 34 points, or 0.5 per cent, to 7,216.
It may not be long before that record is broken.
"The market can expect the statement to acknowledge the new theme of patience, which should mean that the gradual rate hiking forward guidance of previous statements is tempered down", Mohammed Kazmi, portfolio manager at UBP wrote in a note.