“The Fed is walking a fine line between calming the markets with dovishness, and igniting more global concerns”, Hans Mikkelsen, credit strategist at Bank of America Merrill Lynch warned in a research note.

Though Fed Chair Janet Yellen said a rate hike this year is possible, much depends on incoming economic data – and that only adds to the uncertainty for investors.

Stocks fell sharply Friday as investors processed the lingering cloud of uncertainty, after the Fed’s decision to not raise rates from their record low.

At a closely watched meeting, Fed officials voted nine to one to keep the benchmark Federal funds rate range unchanged between 0 per cent and 0.25 per cent.

The committee has provided no estimate as to when it might consider raising rates, saying it will only do so once it has seen “some further improvement in the labor market and is reasonably confident that inflation will move back to its two percent objective over the medium term”.

In a clear reference to the recent turmoil provoked by the downturn in the Chinese economy, the Fed noted that it is “monitoring developments overseas “, even as it said that the risks facing the U.S. economy are still “nearly balanced”.

“We saw a very substantial downward pressure on oil prices and commodity markets and those developments have had a significant impact on many emerging market economies that are important producers of commodities, as well as more advanced countries including Canada”, Yellen said.

The Fed has not raised interest rates since 2006, and more than half of economists in a Bloomberg survey had expected an increase this month.

The anxiety that gripped investors before Thursday’s decision stemmed in part from concern that once the Fed starts raising its key rate, other rates – for mortgages, auto loans, business borrowing – will eventually rise.

In Europe, Germany’s DAX was down 1.8% at 10,048 while the CAC-40 in France fell 1.5% at 4,586. It now foresees the economy expanding at just a 2.3 percent pace next year, down from June’s projection of 2.5 percent.

In an updated economic forecast, 13 of the 17 Fed policymakers said they see the first rate hike occurring this year.

After two days of meetings, the Fed on Thursday announced it will leave the Fed funds rate – the overnight interest rate charged to member banks – at zero despite increasing evidence the United States economy has almost achieved full employment and inflation is nowhere to be found.

In the end, however, they were left with a muddled picture marked by low US unemployment and steady economic growth, but no sign that inflation has begun to rise towards the Fed’s target.