Slower US growth means no rate rise for 2019, says Fed

Yen benefits as dollar faces expectations for an accommodative Fed

USA stock indexes were mostly lower late Wednesday afternoon as investors weighed the Federal Reserve's decision to rule out interest rate increases this year and its latest outlook on the US economy.

That triggered one of the biggest slides for Treasury yields in months, knocking the 10-year Treasury yield as low as 2.53 per cent, down from 2.61 per cent late Tuesday and from 3.20 per cent late last year.

Treasury yields fell after the Fed's statement, with the benchmark 10-year touching a 14-month low.

"U.S. stocks are nearing record highs once again as investors price in a cautious scenario for policy, considering the macroeconomic environment hasn't changed much since the Fed paused in January", wrote John Lynch, chief investment strategist for LPL Financial in a note.

Fed members changed their outlook for 2019 from the two increases predicted in December to no movement.

The Fed also says it will stop shrinking its bond portfolio in September, a step that would help hold down long-term interest rates.

Bond yields moved lower in response to the Fed's announcement.

Expectations for an interest-rate hike this year have fallen below those for a cut.

The Dow Jones Industrial Average fell 141.71 points, or 0.5 per cent, to 25,745.67.

The average had been down more than 216 points earlier.

Spot gold added 0.5 percent to $1,312.24 an ounce.

Sterling fell 0.3 per cent to $1.3220 as turmoil grips Britain's exit from the European Union.

Markets expect the Fed to strike a dovish tone when it meets this week, and bets on an interest rate cut have increased after weaker-than-expected manufacturing data on Friday.

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The US central bank raised US interest rates seven times over 2017 and 2018.

The Fed forecasts economic growth of 1.9 percent in 2020.

The change could prompt speculation that December's rate hike, despite a Wall Street sell-off and signs of weakening economic activity, was aimed at demonstrating the central bank's independence from Mr Trump. Viacom lost 4.7 per cent and Discovery gave up 3.2 per cent.

Losses in banks and health care stocks outweighed gains in communications and energy stocks.

That compares with a December projection for a 3.1 percent rate in 2020 and 2021, with borrowing costs converging to 2.75 percent in the longer run, according to the median path.

Sit Fixed Income Senior Vice President Bryce Doty on the impact of the Federal Reserve and US trade talks with China on the markets.

Talks are set to resume next week - the first since President Donald Trump delayed a March 1 deadline to raise tariffs on Chinese imports - in an acceleration aimed at ending an eight-month trade war between the world's two largest economies.

He told reporters that tariffs will be in place for a substantial period of time to make sure that quote China lives by the deal.

On the whole, though, many investors are holding on to hopes of a deal between Washington and Beijing, even as officials from the two sides remained locked in negotiations.

"China is eager to come to an agreement so I'm not too anxious", said Wang Shenshen, strategist at Tokai Tokyo Research Center.

Despite Wednesday's downbeat finish, the market is still off to a roaring start to the year.

The S&P 500 index fell 5 points, or 0.2 per cent, to 2,826. That's better than the full-year gains for the benchmark index in four of the past five years.

"OPEC and non-OPEC producers are determined to get the supply and demand dynamics better into balance, recognising that US shale production is going to continue to rise", said Andy Lipow, president of Lipow Oil Associates in Houston.

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