Stocks Settle Lower After Fed Meeting

Updated from 4:21 p.m. EDT

Wall Street's data-inspired rally faded into the close Wednesday, and the major indices finished slightly lower after traders and analysts found themselves struggling to discern the Federal Reserve's intentions on the future direction of interest rates.

The Dow Jones Industrial Average, up nearly 180 points earlier, squandered all of those gains to end down 11.81 points, or 0.09%, at 12,820.13. The S&P 500 shed 5.35 points, or 0.38%, at 1385.59, and the Nasdaq Composite lost 13.3 points, or 0.55%, to 2412.80.

The story of the day was the Fed, which cut its fed funds target by 25 basis points, taking the overnight interbank lending rate to 2% and extending a series of reductions that have lowered rates by 325 basis points since September. The discount rate, or that at which the Fed lends money to banks, was also lowered by a quarter-point, to 2.25%.

In its decision, the Federal Open Market Committee, the policymaking arm of the Fed, cited financial markets that remain "under considerable stress," a softening labor market, tight credit conditions and the deepening housing contraction.

The downturn in the stock market came as the FOMC set off a debate about whether it might pause the rate-easing cycle or continue to cut. Notably, the Fed removed language from its statement about risks being weighted to the downside.

"The substantial easing of monetary policy to date, combined with ongoing measures to foster market liquidity, should help to promote moderate growth over time and to mitigate risks to economic activity," the FOMC statement said.

While a number of observers felt the central bank was signaling that it will keep rates on hold, not everyone was convinced.

Richard Yamarone, chief economist with Argus Research, said, "The Fed's shut the door on rate cuts, but it's unlocked. It's only unlocked in the event that there's some financial calamity which forces them to reopen the door, but for all intents and purposes, I think this rate-cutting campaign has ended."