The Fed raised interest rates by another 75 basis points — the fourth time in a row — which will lead to even higher borrowing costs for American families and businesses. It was the sixth interest rate rise this year.
Wednesday's announcement brings the Federal Open Market Committee's short-term rate between 3.75 per cent to 4 per cent, the highest level in 14 years.
But the Federal Open Market Committee hinted that it could be ready to reduce the size of its rate increases as it looks to bring inflation back down to 2 per cent.
Fed officials said they would take into account “the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments” when making future interest rate decisions.
Jerome Powell, the central bank's chairman, said no decision has been made on whether December's meeting will bring a fifth consecutive rise of 75 basis points, but argued it is “very premature” to think about pausing the increases.
Mr Powell noted the economy is growing robustly while still posting “robust” job gains as unemployment remains low. He also argued the ongoing war in Ukraine is causing additional inflationary pressures.
Stocks fell sharply after Mr Powell said the central bank would continue to implement interest-rate rises.
The S&P 500 index fell 2.5 per cent as of 4pm ET, erasing the brief rally it experienced after the Fed's 2pm announcement. The Nasdaq composite also fell by 3.4 per cent.
Fed officials have stressed that they need to act aggressively to tamp down on inflation, which currently stands at 8.2 per cent. But recent government figures provide mixed information about the interest rates' effectiveness.
The US housing market has been particularly damaged by the Fed's borrowing rates. The 30-day mortgage rate topped 7 per cent for the first time in two decades, mortgage buyer Freddie Mac reported last week. And existing-home sales dropped for the eight consecutive month in September.
But the jobs market remains resilient. The US on Tuesday reported that companies reported more openings in September than in August, making the Fed's task of slowing the economy and cooling inflation more challenging.
Fed officials have said that their actions will inflict “pain” on American households, ostensibly in the form of layoffs. Mr Powell has also warned against loosening Fed policy too soon, saying the bank will continue to “keep at it until the job done”.
White House Press Secretary Karine Jean-Pierre said the Fed's actions are “part of our transition to stable and steady growth”. She pointed to increasing mortgage rates as reason to believe that housing inflation should decrease.
Bankers and former Treasury officials believe that the Fed's aggressive actions will result in a recession next year, but Mr Powell and President Joe Biden remain resolute in their belief that avoiding one is possible.
Reuters contributed to this report