The US Federal Reserve said it would continue buying bonds at an $85 billion monthly pace for now, surprising markets braced for a reduction in its economic stimulus.
Citing strains in the economy from tight fiscal policy and higher mortgage rates, the Fed decided against the tapering of asset purchases that investors had all but priced into stock and bond markets.
"The committee decided to await more evidence that progress will be sustained before adjusting the pace of its purchases," the US central bank said in a statement announcing its decision.
Esther George of the Kansas City Fed again dissented, saying she was worried about financial bubbles due to the Fed’s low rate policy.
The move comes against the backdrop of a somewhat gloomier outlook for economic growth from US Fed officials.
In a new set of quarterly forecasts, the Fed now sees growth in a 2-2.3% range this year, down from 2.3-2.6% in its June estimates.
The downgrade for next year was even sharper: 2.9-3.1% from 3.0-3.5%.
Most policymakers, 12 out of 17, also projected the first official interest rate hike will come in 2015.
That is despite forecasts for unemployment to potentially reach 6.5%, the threshold at which rate hikes will begin to be considered, sometime next year.
To temper any market jitters from a slowing in its purchases, the Fed reiterated that it will not start to raise rates at least until unemployment falls to 6.5%, so long as inflation does not threaten to go above 2.5%.
The US jobless rate in August was 7.3%.
The benchmark S&P 500 stock index surged to a record high and the dollar fell to a seven-month low against the euro after the Fed released its widely anticipated statement.
Obama wants businesses to pressure politicians over debt
Meanwhile, US President Barack Obama has appealed to business leaders to urge Congress to approve an increase in the US debt limit without any conditions attached and avoid a default that is possible as early as mid-October.
Mr Obama’s speech to about 100 top corporate executives was part of an effort to focus on domestic budget and economic issues after a month dominated by foreign policy, mainly the conflict in Syria.
"I'm happy to negotiate with them around the budget," Obama said. "What I will not do is to create a habit, a pattern, whereby the full faith and credit of the United States becomes a bargaining chip to set policy."
He reiterated his vow not to negotiate over raising the debt limit, which Republicans want to tie to spending cuts or to blocking his signature healthcare programme.
He said he was willing to haggle over the terms of the budget, but not against the threat of a government shutdown or killing the healthcare program.
The US Treasury is expected to exhaust measures to avoid exceeding the $16.7 trillion debt limit as soon as mid-October.
If the borrowing cap is not raised, the United States will not be able to pay all of its bills and would go into default.