The Federal Reserve left its fed funds rate at 2% Tuesday despite increased hopes for a rate cut.
Wall Street wanted a cut in order to help ease the pain in the financial sector and restore investor confidence.
The Fed's policymakers acknowledged the deepening problems facing the nation's financial markets as well as weaker economic fundamentals in its statement.
"Strains in financial markets have increased significantly and labor markets have weakened further," said the statement, making reference to the jump in unemployment to a five-year high of 6.1% in August. It also warned that softer spending by consumers is expected to slow economic growth.
But the Fed added that it believes rates are already low enough to spur future economic growth and that despite recent declines in commodity prices, such as oil, the outlook for inflation remains uncertain.
The fed funds rate is the central bank's key tool to affect the economy. Lowering the rate pumps money into the economy by reducing the cost on a broad range of loans, including credit cards, home equity lines and many business loans.
