Federal Reserve policymakers cut interest rates by a quarter point, as was widely expected, but the accompanying statement appeared to dash hopes for another easing this year.

The Fed lowered its benchmark interest rate, the target for the federal funds rates, to 4.5 percent, from 4.75 percent. It also cut the discount rate by a quarter point, to 5 percent. In its statement the Fed acknowledged that the economy would slow in the coming months in part because of the "intensification of the housing correction."

But the statement also said the Fed now sees that "the upside risks to inflation roughly balance the downwide risks to growth," suggesting that after the move today and the  half point cut in September,  the central bank would keep rates steady for some time.

And the Fed noted that "strains in financial markets have eased somewhat on balance."

Stocks fell sharply immediately after the announcement, but quickly recovered. The Standard & Poor's 500-stock index is now up 0.9 percent. While the signal of a hold on rates ahead was a disappointment, the Fed's outlook, combined with the stronger-than-expected data on third-quarter economic growth, apparently encouraged investors.

"Today's action, combined with the policy action taken in September, should help forestall some of the adverse effects on the broader economy" from financial disruptions, the Fed said in its statement.

The February federal funds futures contract fell, indicating that expectations for another rate cut in December or January has faded,

"Unless the incoming data signal a net increase in downside growth risk, they think they are done,'' said Ian Shepherdson, chief U.S. economist at High Frequency Economics in Valhalla, New York, told Bloomberg News. "Inflation worries—oil and commodities—just won't go away.''

The decision was marked by one dissent, the first time that has happened this year: Thomas Hoenig of the Federal Reserve Bank of Kansas City voted for no change in rates.

And the request to lower the discount rate came from only 6 of the 12 Federal Reserve banks.