Something we don't know - Post Fed reaction

Oddly, the markets did not respond well to the Fed decision to hold rates at zero on Friday. The Dow was down almost 300 points at one point (1.74%), while the S&P 500 was down 32 points (1.62%). Convention would dictate that the markets rally if the Fed kept rates low, which translates into lower financing costs for the economy. Here are some reasons I can think of for this anomaly:

The Fed knows something we don't:

The US economy might not be on the recovery we all think it is. Inflation at 0.4% was far away from the target of 2%; the only number on track was unemployment dropping to 5.1% ... but could it be because people gave up looking for jobs altogether? More people not looking for jobs would also exclude them from the workforce, thereby leading to a lower unemployment rate... there is more to the numbers than meets the eye.

OR

There are external risks (i.e China, Emerging markets,Commodities or ??? ) too great to ignore that it had to be taken into account. See previous post.

OR both.

Does she know something we don't?

Either way, investors are selling off because of the lack of clarity and certainty. They have interpreted the decision that the table of wise men do not think well of the economy. What happened on Friday should be a knee jerk reaction, unless things get worse. Till then, as Chuck Prince remarked infamously before the crisis," As long as the music is playing, you've got to get up to dance".