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The Federal Reserve opted not to raise interest rates at its January meeting and gave no indication that it was changing course on its rate-hiking path ahead.
Amid substantial turmoil in financial markets, the Federal Open Market Committee statement issued Wednesday did say it was "closely monitoring global economic and financial developments," referring to the volatility that led most of Wall Street to dismiss the possibility of a rate hike this month.
Major stock averages sold off immediately after the statement as Wall Street parsed out Fed language for how hawkish the U.S. central bank will be through the rest of the year.
"It's the tail wagging the dog. If the market stabilizes, the Fed will hike," said Joseph LaVorgna, chief U.S. economist at Deutsche Bank. "The problem is, the markets are looking for some certitude and they can't get it. That's the problem with data dependency. It means different things to different people. The inability of (Fed Chair) Janet Yellen to articulate this is going to be a growing source of concern for markets."
There were a handful of changes to the Fed's outlook, including a lowering of what it considers full employment, dropping that figure to 4.9 percent, which is just below the current rate of 5 percent.
In addition, the committee did indicate some additional concerns regarding inflation, though it considers current conditions transitory. The committee "would be concerned" if there were signs that inflation was "running persistently above or below this objective."
The policy is "in line with dovish expectations," said Kathy Jones, chief fixed income strategist at Charles Schwab. "If there's anything to hold onto, it's the statement about inflation. That's a relatively new indication of concern that maybe they're missing that target over a longer period of time. That would argue for easier policy. That's kind of a new perspective for them."
The document noted that while economic growth is slow, labor conditions are improving and the persistently low level of inflation would change. Fed officials maintained their belief that the ongoing plunge in energy prices is merely "transitory" and will pass in the medium term.
The statement said the employment outlook "improved further even as economic growth slowed late last year." Fed officials believe the labor market has tightened though there is little indication of wage inflation.
"Inflation is expected to remain low in the near term, in part because of the further decline in energy prices, but rise to 2 percent over the medium term as the transitory effects of declines in energy and import prices dissipate and the labor market strengthens further," the statement said.
The Fed's decision comes with investors on edge due to a nearly relentless market decline since the last FOMC meeting. The statement did say the central bank was "closely monitoring" conditions.
"The Fed is telegraphing to the market, 'we understand the process of normalization is going to cause uncertainty to markets. Yes, we're watching it from a global perspective,'" said Quincy Krosby, market strategist at Prudential Financial. "But the Fed is not running a hedge fund. At the end of the day, the Fed has two mandates. They could not continue to keep rates low with the labor market improving."
A continued slide in oil prices, coupled with worries about a hard landing in China and weak economic data at home, have sent major U.S. averages into correction territory. Manufacturing indexes are indicating contraction in the industrial sector, while fourth-quarter corporate earnings are on track to decline 6 percent from the same period a year ago.
Virtually no one expected the FOMC to raise rates in January, a month after the committee hiked its rate a quarter point for the first such move in more than nine years. Wall Street was looking closely at the wording in the post-meeting statement for indications of the future course, but the statement only repeated language that increases will be "gradual." The statement gave little indication that the future trajectory was discussed; projections in December indicated officials believe four rate hikes are likely in 2016.
Futures markets are indicating virtually no chance that the Fed will stay on that course, with the more likely scenario being one or two hikes ahead.
The December statement justifying the rate increase cited "considerable improvement in labor market conditions," an expected rise in inflation to near the Fed's 2 percent target, and the lag effect of changes in monetary policy.
The statement passed unanimously. A Fed spokesman said that despite the inclement weather that recently gripped Washington, D.C., and the rest of the East Coast, all FOMC members were present for the two-day meeting.