Fed Chairman Jerome Powell also said the central bank would continue drawing down the size of its balance sheet by $US50 billion ($70 billion) each month.
But the slight revision was not enough to ease market fears over a further US economic slowdown on the back of trade tensions, a waning boost from tax cuts and tightening monetary conditions for companies.
With that in mind, the Federal Open Market Committee, a group that includes Fed governors and a rotating cast of regional Federal Reserve Bank presidents, voted unanimously to increase the target for the federal funds by a quarter-point to a range of 2.25 to 2.5 percent.
"Political comments have played no role whatsoever in our decisions or discussions on monetary policy", Powell said on Wednesday, noting the Fed is an independent agency.
The Nikkei declined to 20,015.67 points, putting its loss for the year at almost 13 percent, while the Shanghai index declined to 2,512.54.
"It appears that markets are perhaps now starting to focus on some of the more dovish aspects of the Fed's announcement", said Nick Bennenbroek, currency strategist, at Wells Fargo Securities in NY. Overall, I think that the markets will continue to favor gold overall, because not only do we have the idea of the Federal Reserve stepping away, we also have the possibility of gold being used as a safe haven.
The S&P 500 fell 39 points, or 1.6 per cent, to 2,467. It will mean higher costs for business loans, balances on credit cards, auto loans, and home equity loans - all of which are driven by short-term Fed rates. The front end of the yield curve rose, while longer-dated bonds saw rates holding steady near multimonth lows.
Powell said the Fed will adjust accordingly to the economy, and that he and his colleagues will raise interest rates if the economy grows faster than expected. As with a similar move in June, the action was aimed at containing the effective fed funds rate inside the target range. Wren said investors want to know that the Fed is keeping a close eye on the situation. At the same time, the number of projected increases in the next year was also reduced: from three to two.
The stock has been pummelled with the S&P 500 falling from 2900 to 2500, registering a loss of 400 points or 14% since October. American stocks are tumbling like they did during the Great Depression, reportedly alarming the markets."This is clearly a disappointment for those hoping for a dovish rate hike", said David Joy, Chief Market Strategist at Ameriprise Financial in Boston. "Job gains have been strong, on average, in recent months, and the unemployment rate has remained low".
Global financial markets lost earlier gains after the Federal Reserve's announcement, and as forex trading with an AUD focus experiences more volatility, the Fed also noted that there will be another increase in interest rates in the coming year. The fear is that optimism could translate into more rate hikes in the future. The bond-buying has the effect of sending long-term bond yields lower, which reduces interest rates on mortgages and other kinds of long-term loans.
Analysts said the Fed did not appear as concerned about the economy as some investors might have expected.
In the Fed's policy statement, it pointed out the strong United States jobs market and consumer spending and said it sees risks as "roughly balanced", adding that it would continue to monitor global economic activity.