The world's most important central bank said on Wednesday night that it sees the case building for rate cuts this year, starting potentially as early as next month, as it prepares to battle growing global and domestic economic risks.

"This Fed meeting very much brings a global currency war into our central scenario. It becomes a race to the bottom for global rates markets, a race to the bottom for FX," said Mizuho's head of rates Peter Chatwell.

"The response from the ECB will be on the aggressive side, and other central banks who are already in the race to start with will have to step it up."

U.S. Treasury yields dropped to some of its lowest levels in years on the news, with 10-year yields dropping below 2% for the first time since November 2016.

Euro zone government bond yields followed suit, with Germany's 10-year government bond yield, the benchmark for the bloc, down 3 basis points at -0.316%, testing this week's record low of -0.329%..

Major government bond yields tend to track each other as many investors switch between them. In addition, policy easing from the U.S. has a global impact on market prices.

The rally ran right through the euro zone bond market, with other yields lower between 4 and 9 basis points.

Spain's 10-year bond yield hit a new record low of 0.36%, down 4.5 bps on the day, while Italian debt benefited the most, with yields lower 8-9 bps across the curve to some of their lowest levels in a year.

Italy is seen as one of the biggest beneficiaries from central bank stimulus.

The news from the United States follows a similar message from European Central Bank chief Mario Draghi, who this week opened the door to rate cuts and the potential reopening of asset purchases.

Other central banks such as those in Australia, New Zealand, India and Russia have also cut rates recently.

That message had pushed German Bund yields to record lows, though they retraced a little on Wednesday.

"In Europe there was some evidence of dovish ECB messages being taken off yesterday just in case the Fed was more hawkish. Well, the Fed certainly wasn't hawkish so we may well see some of those dovish ECB positions get put back on with more conviction," said Chatwell.