But a bounce in oil prices and Hong Kong stocks help staunch the selling and after two more wild swings it closed down 38.2 points, or 0.69 per cent, at 5467.6 on volume 25 per cent above average, as three of the four big banks hit multi-year lows.
"The Fed still sees a solid underpinning for the economy based on the numbers and still sees the viability of two rate hikes next year", said Quincy Krosby, chief market strategist at Prudential Financial, in this CNBC report. The central bank also emphasized that future rate increases will depend on the strength of the US economy. They clearly wanted more from the Fed and its chairman, Jerome Powell, even though their policy action and projections fell in line with most economists' expectations.
US stocks had been up sharply before the Fed's announcement, but the Dow Jones Industrial Average closed down about 352 points.
Energy stocks reversed earlier gains and were a clear drag on the indices, weighed down by Origin, which lost 2.5 per cent.
Even with the continued strong job gains, wages have not accelerated, and prices have crept up only gradually, removing pressure on the central bank to put the brakes on the U.S. economy.
The U.S. central bank said it expects to increase interest rates at a slightly slower pace next year, and also said it isn't planning any changes in the gradual shrinking of its large bond portfolio. The so-called federal funds rate now stands at a range between 2.25 percent and 2.5 percent.
The very many risks whirling about markets are highly applicable to the Australian equities.
The latest statement, and an updated economic forecast also released Wednesday, show Fed policymakers remain bullish about the economy.More news: Shorthanded Nuggets topple NBA-best Raptors
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"Over the past year, the economy has been growing at a strong pace, the unemployment rate has been near record lows and inflation has been low and stable", he said.
Powell acknowledged that "some crosscurrents have emerged" in the economy but said recent developments have not "fundamentally altered the outlook". If real GDP continues to grow above the Fed's current estimates of potential without generating an acceleration in inflation, if productivity growth continues to improve, and if the labor force participation rate for the prime working-age cohort continues to rise, the Fed will eventually further revise up its estimates of longer-run growth. And huge high-tech companies, once the best-performing stocks on the market, are now leading the way lower.
More ominously, the world's banking stocks slipped into bear market territory - a drop of 20 per cent or more from a recent peak - in the second-half of this year in a sign of the severity of the deterioration in sentiment.
Gregory Daco of Oxford Economics said the data added to "evidence that business investment momentum continues to gradually cool".
"Faced with political pressure from the president to stop raising rates and panic on the part of investors who were seeing their massive capital gains disappear, the Fed could have punted". "The high end of the range came down significantly and there is still a fairly wide dispersion", indicating some Fed officials "think they don't need to raise rates much here", the secretary said. Failing to do so would have reinforced investor angst about an economic slowdown.
"Much of that (Fed) flexibility was lost in translation for financial markets because the fed remains optimistic about growth", Swonk said.
And although US stocks are now in correction territory, meaning they've fallen at least 10 percent, they still have more to fall to usher in a full-blown bear market. But investors appeared to hope the Fed would unveil a sharper slowdown in interest rate hikes and other credit tightening policies because economic growth is likely to slow down.
Trump has been relentless in making his feelings on the issue public.