After leading a round of global interest cuts in the last three months, the bank believed that it was not the right time to cut rates further despite a widely forecast economic slowdown.

Economists expect a drastic slowdown in the US economy next year to a growth rate of 2% from just below 4% this year.

The Fed's key interest rate for federal funds, which banks charge each other for overnight loans, remained at 4.75%

Arthur Hogan, chief market analyst at Jefferies & Co. said the decision was "expected", adding that "the market has been trading on the assumption that they wouldn't make another change" in interest rates.

The bank had cut rates three times in the space of seven weeks, moving quickly in the hope of shielding the US economy from the fallout of economic crisis around the world.

While many countries continue to suffer, the US economy still appears robust, with healthy domestic consumer demand making up for a fall in manufacturing as exports to Asia and elsewhere have declined.

More to come?

Economists believe that the decision not to cut rates again this year does not mean the end of the rate-cutting cycle.

"We will see at least another half- to three-quarter of a percentage point cut in interest rates next year," said Sung Won Sohn, chief economist at Wells Fargo & Co. in Minneapolis.

"The United States is the bright spot in the world economy right now, but it may not continue to be one next year."

During the day financial markets appeared to be paying little attention to the Fed's last six-weekly meeting of the year.

Shares were lower in early trading, but then went up again as the "Santa Claus" rally regained strength. Most years stock prices are rising during the quiet trading period in the weeks before Christmas and the New Year.

World rate cuts

Since the Fed first cut rates, it has triggered a wave of cuts across the world.

In the UK, the bank of England has cut interest rates by 1.25% and countries across Europe co-ordinated a cut in their interest rates to 3% ahead of the launch of the euro. Before the Fed's announcement the European Central Bank confirmed the 3% rate set for the launch of monetary union and said it was not planning any further cuts for the foreseeable future.

The Fed however may want to maintain the momentum of interest rate cuts to ensure that world growth recovers next year.