In announcing its decision, which follows an aggressive half-point reduction in rates made last month, the policy-setting Federal Open Market Committee said its actions should put the economy on better footing and had brought inflation and growth risks into rough balance.
"Today's action, combined with the policy action taken in September, should help forestall some of the adverse effects on the broader economy that might otherwise arise from the disruptions in financial markets and promote moderate growth over time," the central bank said.
US stocks pared gains, while prices for US government debt extended losses as traders saw the Fed's statement as suggesting a lower likelihood of further rate cuts. The value of the dollar was little changed.
The Fed's vote was not unanimous. Kansas City Federal Reserve Bank President Thomas Hoenig dissented, preferring to hold borrowing costs steady. "Recent increases in energy and commodity prices, among other factors, may put renewed upward pressure on inflation," the Fed said. "In this context, the committee judges that some inflation risks remain."
"After this action, the upside risks to inflation roughly balance the downside risks to growth," it added. Prices for US interest rate futures contracts showed dealers were scaling back bets on further rate cuts on the back of the Fed's announcement, implying a 50 percent chance the Fed will lower rates again in December down from 64 percent overnight.
Credit markets, which were roiled in August as concerns mounted over rising delinquencies in the US mortgage market, have regained some stability since the Fed lowered rates by a half-percentage point on September 18. Fed officials have said they expect the housing slump and the after-effects of tighter credit to weigh on the economy into next year.
A string of gloomy economic reports in recent weeks, including slipping consumer confidence and tumbling home sales, had raised fears the economy might be weaker in coming quarters than the Fed had anticipated. However, as policy-makers convened on Wednesday, a government report showed that growth in the third quarter was considerably stronger than most economists expected.