In addition, the central bank offered a nod to recent signs suggesting the economy is moving ahead only slowly.
"Recent indicators have been mixed and the adjustment in the housing sector is ongoing," the Fed said. "Nevertheless, the economy seems likely to continue to expand at a moderate pace over coming quarters."
Prices for U.S. stocks and government bonds rose, while the dollar fell, as traders in financial markets saw the Fed's shifts in language opening the door to possible rate cuts later in the year.
Still, the Fed said it had not put away its inflation concerns. "The committee's predominant policy concern remains the risk that inflation will fail to moderate as expected," it said.
"More Good Than Bad"
"On balance I think there was more good than bad in the statement," Arthur Hogan, managing director at Jefferies, told CNBC.com. "The Fed sort of leaned in the direction that inflation will ease moving forward and that was reassuring. There was enough balance in the statement to indicated that the Fed is as likely to ease as tighten."
At its previous meeting in January, the central bank had said growth was looking "somewhat firmer." Since then, however, a jump in default rates for mortgages held by less-creditworthy borrowers has sparked worry that mainstream lenders might start having trouble and that it might become more difficult for households and businesses to borrow.
Beyond the subprime sector, there has been little to support the view that housing markets were stabilizing, as the Fed had believed.
A report three weeks ago showed sales of new homes had tumbled almost 17% in January, the largest slide in 13 years, while data this week showed that permits for future home building fell in February.
Meanwhile, a sharp sell-off of U.S. stocks late last month added to worries that consumers, already feeling pinched by stagnating or falling home values, might rein in spending, putting an additional drag on the economy.
Worries About Inflation
Against evidence of weaker growth, there was scant reassurance inflation was moderating as the central bank had hoped.
The 12-month change in the so-called PCE price index, the inflation measure preferred by Fed policy-makers, moved up to 2.3 percent in January from 2.2% in December, above the 1% to 2% comfort zone of many officials.
The Federal Reserve left a key interest rate unchanged on Wednesday while taking note of the recent weaker economic performance and higher inflation pressures.
The central bank voted to leave the federal funds rate, the interest that banks charge each other, at 5.25%. It marked the sixth straight meeting in which the Fed has kept the rate the same.
As it has at previous meetings, the Fed said it was more worried about the risk of inflation than weak economic growth. But this time it dropped language that talked solely about the possibility that interest rates would be increased in the future.
Economists believe it is highly unlikely that the Fed will boost rates in coming months, given troubles in the housing industry and sluggish economic growth.