Update 4:50 p.m.: And that's the final count: Up 430 points, or 4 percent, at 11,239.97. 

The Dow Jones Industrial Average recovered two-thirds of the value it lost Monday, when it registered its sixth-largest decline ever.  The Nasdaq Composite Index — which also swung sharply back and forth all day — ended up 124.83 points, or 5.3 percent, at 2,482.52.

Latest Dow Jones Industrial Average

The wild swings Tuesday — as many as 450 points in a single hour — inspired  cartoonists with the same metaphor: the roller coaster. Click here for the slideshow.

Joe Heller / Green Bay Press Gazette, Politicalcartoons.com

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Update 4 p.m. ET: The wild day on Wall Street is ending with yet another surprise. After a couple of hours of massive swings (as many as 450 points in a single hour) the Dow Jones Industrial Average zoomed to its highest level of the day, to 11,239.97 — a 430-point gain over Monday.

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Update 3:30 p.m. ET: The Fed's pledge Tuesday to keep interest rates at record lows for two more years comes couched in downbeat assessments of the economy. At the same time, it indicated that it refuses for now to take further action, which appears to be giving markets fits. 

Msnbc.com's John W. Schoen says Fed Chairman Ben Bernanke and his colleagues "have very few cards left to play." 

"Since the Panic of 2008, the central bank has flooded the financial system with cash, spending $1.4 trillion to buy bonds backed by high-risk mortgages and snapping up another $900 billion in Treasury bonds," Schoen writes. "The Fed's easy money policy is designed to keep credit flowing after the collapse of a decade-long borrowing binge."

Neil Irwin of The Washington Post agrees, calling the statement "a modest step" and saying that "by explicitly stating the central bank's easy money policies — specifically, a short-term interest rate target near zero — for two more years, the Fed is hoping to lower interest rates throughout the economy to encourage immediate investment and consumption."

Matt Phillips of The Wall Street Journal noted that three members of the Federal Open Markets Committee voted against the statement.

"The market doesn't like the look of the dissension in the ranks on the FOMC. It's not just the folks at the extremely hawkish — meaning inflation focused — wing of the committee who were squawking about the change to the extended period language," Phillips writes.

But Joseph Arsenio, managing director of Arsenio Capital Management in Larkspur, Calif., was more optimistic:

"The reason the market is down is because slow growth over an extended period is embedded in that statement. I don't believe that will be the case. The Fed's ability to project growth has been poor. All this indicates is the Fed will tolerate a higher level of inflation."
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Update 3 p.m. ET: As the Federal Open Markets Committee released its statement Tuesday afternoon, the stock market dived sharply. Since then, it has been gyrating wildly, falling or rising as far as 175 points in minutes. 

A 3 p.m. ET, the Dow was down 59½ points, 320 lower than it had been a couple of times before the statement came out at 2:15 p.m. The Nasdaq composite index was down 16. The yield on 10-year Treasury notes was down to 2.27 percent, its low for the year. Oil prices sank by $2.03 a barrel. Gold — a retreat for investors in tough markets — was up to a near-record $1,766 an ounce. 

There's still no way to definitively answer the question posed by Reuters: Will the Fed decision "be enough to put a floor on a U.S. stock market"? But early indications are that the answer will be "no."

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Update 2:30 p.m. ET: Reuters says it's "unclear whether the (Fed) decision, which involved no new commitment of funds for bond purchases, would be enough to put a floor on a U.S. stock market that has fallen more than 15 percent in the last two weeks."

That uncertainty appeared to be reflected on Wall Street, where the Dow swung sharply back and forth as investors digested the news. 

The Fed said economic growth was weaker than expected and that inflation was likely to "remain contained."

"The committee currently anticipates that economic conditions — including low rates of resource utilization and a subdued outlook for inflation over the medium run — are likely to warrant exceptionally low levels for the federal funds rate at least through mid-2013," it said.

Here's the full statement:

Information received since the Federal Open Market Committee met in June indicates that economic growth so far this year has been considerably slower than the Committee had expected.  Indicators suggest a deterioration in overall labor market conditions in recent months, and the unemployment rate has moved up.  Household spending has flattened out, investment in nonresidential structures is still weak, and the housing sector remains depressed.  However, business investment in equipment and software continues to expand.  Temporary factors, including the damping effect of higher food and energy prices on consumer purchasing power and spending as well as supply chain disruptions associated with the tragic events in Japan, appear to account for only some of the recent weakness in economic activity.  Inflation picked up earlier in the year, mainly reflecting higher prices for some commodities and imported goods, as well as the supply chain disruptions.  More recently, inflation has moderated as prices of energy and some commodities have declined from their earlier peaks.  Longer-term inflation expectations have remained stable.

Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability.  The Committee now expects a somewhat slower pace of recovery over coming quarters than it did at the time of the previous meeting and anticipates that the unemployment rate will decline only gradually toward levels that the Committee judges to be consistent with its dual mandate.  Moreover, downside risks to the economic outlook have increased. The Committee also anticipates that inflation will settle, over coming quarters, at levels at or below those consistent with the Committee's dual mandate as the effects of past energy and other commodity price increases dissipate further.  However, the Committee will continue to pay close attention to the evolution of inflation and inflation expectations.

To promote the ongoing economic recovery and to help ensure that inflation, over time, is at levels consistent with its mandate, the Committee decided today to keep the target range for the federal funds rate at 0 to 1/4 percent.  The Committee currently anticipates that economic conditions--including low rates of resource utilization and a subdued outlook for inflation over the medium run--are likely to warrant exceptionally low levels for the federal funds rate at least through mid-2013.  The Committee also will maintain its existing policy of reinvesting principal payments from its securities holdings.  The Committee will regularly review the size and composition of its securities holdings and is prepared to adjust those holdings as appropriate.

The Committee discussed the range of policy tools available to promote a stronger economic recovery in a context of price stability.  It will continue to assess the economic outlook in light of incoming information and is prepared to employ these tools as appropriate.

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; Elizabeth A. Duke; Charles L. Evans; Sarah Bloom Raskin; Daniel K. Tarullo; and Janet L. Yellen.

Voting against the action were: Richard W. Fisher, Narayana Kocherlakota, and Charles I. Plosser, who would have preferred to continue to describe economic conditions as likely to warrant exceptionally low levels for the federal funds rate for an extended period.

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Update 2:23 p.m. ET: The Dow Jones Industrial shot downward as soon as the Federal Open Markets Committee announced it was likely to hold key interest rates steady for the next two years. After coming close to a 250-point gain a couple of times Tuesday, the Dow had given back all its gains and was down about 30 points.

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Update 2:20 p.m. ET: The Federal Open Markets Committee says it will likely keep a key interest rate at a record low for two more years. Updates to come.

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Update 2:15 p.m. ET: After coming close to a 250-point gain a couple of times Tuesday, the Dow Jones Industrial Average was falling in anticipation of a statement from the Federal Open Markets Committee.

Many economists were dubious about the prospect that the Federal Reserve committee would take strong action to stem losses on the markets (see below). At 2:15 p.m. ET, as the statement was scheduled to be released, the Dow was up 95.06 points had fallen back below 11,000 at 10,904.

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Update 1:48 p.m. ET: Gene Sperling, President Barack Obama's chief economic adviser, blames "hard-line" political posturing for the turmoil in the economy.

"Putting our economy first and our politics second is what's imperative" for a recovery, Sperling says in an interview with NBC's Andrea Mitchell. 

But he refuses to predict what the Federal Open Market Committee might do when it releases a statement at 2:15 p.m. ET.

"Smart economic advisers at the White House don't comment on the independent Federal Reserve," he said.

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Update 1:38 p.m. ET: The Federal Open Market Committee is expected to release a statement about 2:15 p.m. ET after its meeting. There's a lot of speculation about what, if any, concrete steps the Fed committee will take, but CNBC's executive news editor, Patti Domm, cautions that "the decline in financial markets is viewed as too fresh for the Fed to react to in any major way."

Joseph LaVorgna, chief economist at Deutsche Bank, tells Domm the Fed has few options left.

"I think what they should and will do is downgrade the growth outlook, downgrade the inflation run up and just say rates are going to stay where they are until the economy gets traction — essentially a downshifting of tone and that's it," LaVorgna said. "Effectively, there are no policy levers left."  

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Update 1:08 p.m. ET: The Treasury Department says Secretary Timothy Geithner spoke by phone with his Chinese counterpart, Vice Premier Wang Qishan, about "the challenges facing the global economy and the state of global financial markets."

The terse statement from Treasury gave no further details on the call, so it's not known what hey said. But China has been withering in its criticism of the Obama administration's economic policies in recent days.

In a commentary dated Wednesday, the official Chinese news agency, Xinhua, wrote that Washington remains "hamstrung" economically and politically. Unless Washington rights the ship, Xinhua said, the current crisis will "depress global trade and send biting chills through many exports-dependent countries.

In what Reuters said might be a sign that Beijing's stance was softening, however, Premier Wen Jiabao urged nations Tuesday to work together to stabilize the markets.

"Speaking after a regular meeting by the Chinese cabinet, Wen alluded to debt problems in the United States and Europe and called on 'relevant' countries to implement responsible monetary policies and rein in fiscal deficits," Reuters reported.

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Update 12:45 p.m. ET: Economists are all over the map when it comes to whether the weakening markets mean the underlying economy is weakening.

In a note to investors, Merrill Lynch credit strategist Hans Mikkelsen said the sell-off over the past couple of weeks is a "reassessment higher of the probability that the US slips back into recession."

Monday's 634-point drop in the Dow Jones Industrial Average "appears motivated by such continued economic fears, more so than the S&P's downgrade" of the U.S. credit rating last week, Mikkelsen wrote Monday, saying Merrill expected "very slow economic growth — but not the recession that appears to be increasingly priced into spreads."

Rather than the expected and actual US downgrade we think that the biggest factor behind the sell-off in corporate credit over the past couple of weeks — including today — has been an increase in the probability that the US economy will enter another recession in the not too distant future. For example our economists last week estimated a 35% probability of the US entering a new recession over the next year.

But Ian Shepherdson, chief U.S. economist at High Frequency Economics, told The New York Times that that's not necessarily the case:

Admittedly, aside from the stock market slide, signs are not exactly great right now for the economy. But Mr. Shepherdson is taking heart from the 4.8 percent increase in chain store sales reported by Redbook Research during the first week of August compared with a year earlier.

Consumer confidence reports have been dismal recently, but Mr. Shepherdson points out that when you ask people "'how do you feel, they say 'miserable.' But that doesn't necessarily mean you don't go shopping."

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Update 12:25 p.m. ET: The impact of this month's market turmoil will be especially big on state budgets, many of which have already been slashed in recent sessions.

Virginia Finance Secretary Ric Brown said the state will likely have to make even further cuts in a projected budget that already has to account for required increases in school funding formulas, improvements to mental health care and greater contributions to the state pension fund.

Now "we will be reassessing all of that," in light of the market downturn, Brown told NBC station WVIR-TV of Charlottesville.

In Washington state, Gov. Christine Gregoire said agencies and workers must find additional budget cuts as high as 10 percent. That's on top of $4.5 billion in projected spending already identified in this year's legislative session, mainly coming from education funding, The Associated Press reported. 

"For every two steps forward in the recovery, it seems we are taking one step back," Gregoire wrote in a letter to state employees this week.

In Minnesota, Budget Commissioner Jim Schowalter said the market downturn will likely "have ripple effects throughout our economy."

Minnesota is already borrowing $700 million to help balance its current budget, Minnesota Public Radio reported, plus $500 million more to fund public works projects. Now, Schowalter said, the state will probably be forced to pay more to borrow.

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Update 12:04 p.m. ET: After a day of "serious extremes," the markets are experiencing an expected rebound, says Arthur Cashin, UBS Financial Services' director of floor operations. But "the key is 2:15," he tells CNBC. "What will the Fed say?"

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Update 11:51 a.m. ET: European markets are closing broadly higher: The FTSEurofirst 300 closed up 1.3 percent at 948.21, and the STOXX Europe 600 was up 3 percent at 232.31.

Reuters said traders were "rummaging around for bargains, with hopes the U.S. Federal Reserve will hint at a plan to revive the economy."

"Short-term, the market will hinge on what the Fed has to say, but we think the next few months will remain volatile," said Julian Chillingworth, chief information officer at Rathbones Brothers of London. "It is difficult to say whether now is the right time to buy."

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Update 11:32 a.m ET: The market turmoil  comes just as the Federal Open Market Committee is about to release a statement that could have a big impact.

Goldman-Sachs predicted the Fed "will take steps toward slightly easier policy":

After several months of disappointing economic data and the recent market rout, we forecast that the FOMC will take steps toward slightly easier policy at today's meeting. Specifically, we look for the committee to indicate that the size of its balance sheet will remain unchanged for an extended period of time-similar to the guidance it already gives for the level of the federal funds rate. We see a good chance that the statement will also include an explicit easing bias, signaling that the committee is monitoring economic and financial developments and is prepared to provide additional accommodation if necessary. Our forecasts assume that the Fed will eventually shift the composition of its Treasury purchases toward longer-duration securities, but we do not expect that step at today's meeting. Finally, the statement will undoubtedly include a downgrade of the committee's assessment of current conditions, perhaps acknowledging that weakness has been less transitory that anticipated.

"Given the turmoil in the market," ForexYard also expects "the Fed to take action:"

"(T)he Fed could change the wording in its statement to reflect its intention to hold interest rates at lows for a longer period of time," the online broker predicted. "The Fed could also signal its intention to hold longer maturity assets on its balance sheet. All of these would be a USD negative. A failure by the Fed to act may also unnerve investors which could be positive for the dollar."