While some market participants hoped the Fed might open the door for eventual rate cuts next year, policymakers maintained a bias towards more tightening as they still see inflation as a risk.

"Their view on housing was recognizing something that everybody already knows," said John Norris, chief economist and senior fund manager at Morgan Asset Management.

Meanwhile, "the no change in the second part of the statement on inflation will leave some disappointed," he said.

The Dow Jones Industrial Average ended down 12.90 points at 12,315.58, off an earlier low of 12,252 but also beneath a morning high of 12,333.

"There were really no surprises," said Stephen Sachs, head of trading at Rydex Investments, explaining the short-lived bounce by the fact that "we had sold off to the degree we had before the announcement."

The Fed altered some of the language in its accompanying statement, "but the themes are the same -- yes, the economy has slowed and housing is a big drag, but inflation while elevated is under control. And the Fed is on hold for the foreseeable future," he said.

Caution had dominated trading ahead of the Fed meeting.

The Fed was widely expected to again leave interest rates unchanged but investors wanted to see whether central bankers would mention any of the weakness seen in recent economic data.

According to Michael Sheldon, chief market strategist at Spencer Clarke, "while expectations of lower rates next year are probably correct, the timing remains uncertain."

Volume was recently 1.525 billion shares on the New York Stock Exchange and 1.972 billion on the Nasdaq. Decliners beat advancers 9 to 7 on the Big Board and 18 to 11 on the Nasdaq.

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