WASHINGTON (Reuters) - The Federal Reserve on Wednesday said it will likely not raise interest rates until at least late 2014, much later than it had said previously, as it nurses a still-sluggish economic recovery.

The Fed, after a two-day policy meeting, repeated its view that the economy faces "significant downside risks" but it offered little to suggest it was close to launching another round of bond-buying to prop up growth.

It did say, however, that it would maintain a "highly accommodative" monetary policy stance. Economic conditions "are likely to warrant exceptionally low levels for the federal funds rate at least through late 2014," the central bank said in a statement.

Many investors had expected the Fed to push its expectations for the first rate hike into 2014, but few had thought it would be late in the year. After every previous policy meeting dating back to August, the Fed had said rates were not likely to rise until mid-2013.

The central bank also appeared more sanguine on the inflation outlook, suggesting prices were now rising at a pace consistent with policymakers' goals. The statement also dropped a reference saying the Fed was monitoring inflation and inflation expectations.

U.S. government debt prices rose sharply after the announcement, pushing long-term interest rates lower, while the dollar fell against the euro. Stocks prices moved into positive territory.

Aside from the 2014 rate pledge, the Fed's statement hewed closely to its last policy pronouncement in mid-December.

It described the unemployment rate as still elevated and said it expects inflation to remain at levels consistent with stable prices. In a slight shift, it acknowledged signs that business investment has slowed.

"I think what they are seeing is that the rate of growth is not sufficient to bring down the unemployment rate," said Brian Dolan, chief strategist at FOREX.com in Bedminster, New Jersey.

Richmond Federal Reserve Bank President Jeffrey Lacker, an inflation hawk who rotated into a voting seat this year, dissented against the decision. He preferred to omit the description of the time period for ultra-low rates.

NEW TRANSPARENCY STEPS

As part of an effort to provide more insight on its thinking to financial markets and the public, the Fed later on Wednesday will begin publishing individual policymakers' projections for the appropriate path of the benchmark federal funds rate. That release is scheduled for 2 p.m. (1900 GMT)

In response to the deepest recession in generations, the Fed slashed the overnight federal funds rate to near zero in December 2008. It has also more than tripled the size of its balance sheet to around $2.9 trillion through two separate bond purchase programs.

The policy is credited with having prevented an even more devastating downturn, but it has been insufficient to bring unemployment down to levels considered normal during good economic times.

In December, the U.S. jobless rate stood at 8.5 percent, and some 13 million Americans were still actively looking for work but could not find it.

While forecasters expect the U.S. economy grew at a 3 percent annual rate in the last three months of 2011, they look for growth of just around 2 percent this year.

Fed officials appear likely to bide their time in determining whether more monetary stimulus is needed. Many economists expect they will eventually decide on another spurt of Fed bond buying - probably one focused on mortgage debt.

There is a possibility officials will announce an explicit inflation target later on Wednesday, perhaps a hard marker of 2 percent or a range of 2 percent or a bit below. The Fed has been debating a statement on its long-run goals, but whether one will be released is unclear.

Analysts said the Fed's shift in communications will put an even greater emphasis on a post-meeting news conference by Fed Chairman Ben Bernanke set for 2:15 p.m. (1915 GMT).

"The chairman is likely to remain non-committal to any additional policy easing, but he is likely to reinforce the Fed's commitment to 'review the size and composition of its securities holdings' and be 'prepared to adjust those holdings as appropriate,'" said Millan Mulraine, senior macro strategist at TD Securities.

(Editing by Tim Ahmann and Andrea Ricci)