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Kudlow: The Fed is completely freaked out right now

Larry Kudlow
Adam Jeffery | CNBC

The Federal Reserve held interest rates unchanged Wednesday, and gave no sign that it would change course on its rate hiking path ahead.

U.S. stocks traded lower after the Fed statement renewed concerns about global economic growth.

The Dow Jones industrial average dropped over 250 points and the Nasdaq composite dipped more than two percent. The lost 1.5 percent in mid-afternoon trade.

Read MoreFed holds line; rate hikes still on the table

Larry Kudlow, CNBC senior contributor, said the Fed's decision to stand pat indicates they are "completely freaked out" about the markets right now.

"The Fed is in preventative defense mode. They won't tell us what they are going to do. They don't want to take any action. They have a hundred indicators. We don't know, they don't know. They sound opaque and confused right now," said Kudlow on CNBC's "Power Lunch" Wednesday.

"Either you are raising rates, which is tightening, or lowering rates, which is easing," he said. "So today's message by the Fed is nothing. They are essentially stepping back, trying to prevent financial catastrophe."

Read MoreFed funds futures: Only 1 more rate hike, in 2nd half of 2016

Kudlow said it is worth noting that the central bank made clear in today's post-meeting statement that it would continue to reinvest proceeds of mortgage backed bonds and Treasury bonds.

"That is a fundamentally accommodative position. If they ever change then all hell will break loose, because it would be a tightening signal."