Fed leaves interest rates untouched

The federal funds rate will remain at 1.75 percent. The funds rate is the interest banks charge each other for overnight loans, which in turn affects companies and individuals who borrow money.

"The current accommodative stance of monetary policy, coupled with still-robust underlying growth in productivity, should be sufficient to foster an improving business climate over time," the Fed said in a statement.

However, the Fed left open the possibility of a rate cut in the near future.

"The committee recognizes that, for the foreseeable future...the risks are weighted mainly toward conditions that may generate economic weakness," it stated.

The Fed, in issuing its vote, said the economic weakness that emerged this spring has been prolonged. This is largely due to continuing lackluster markets and heightened fears that more financial shenanigans will emerge as chief executives and chief financial officers have to sign off on the accuracy of their earnings reports, it said.

"Sounds to me like (the Fed is) hedging," said Tom McManus, managing director and chief investment strategist at Banc of America Securities. McManus said it appeared the Fed did not want to indicate whether it would be easing the rate at its next meeting, Sept. 24.

Blue-chip stocks rose last week on anticipation that the Fed would lower rates by as much as 50 basis points, but by the end of the week that sentiment began to lose steam as a number of Fed watchers issued forecasts to the contrary.

The markets ended Tuesday on a low note, sliding more than 2 percent. The tech-heavy Nasdaq composite index slid 37.52 points, or 2.87 percent, to close at 1,269.32. Meanwhile the blue-chip Dow Jones industrial average lost 206.43 points, or 2.38 percent, ending at 8,482.46. The broader Standard & Poor's 500 index fell 19.58 points, or 2.17 percent to close at 884.22. CNET's Tech Index was down 21.19 points, or 2.39 percent, at 871.92.

The lack of interest rate cuts this year is in stark contrast to last year, when the Fed issued a string of 11 cuts that brought interest rates to a 40-year low.

Economists noted that the Federal Reserve is in a position to weigh economic data when determining whether to cut interest rates. For example, this time it likely considered weak economic reports from factory orders--which fell in June--and slow job growth, and how those factors weighed against a strong housing market and fewer layoffs.