The Fed decided to raise its policy rate by only a quarter of a percentage point and signalled that it was considering only one more such hike in the short term, in a context undermined by the banking crisis.

Wall Street fell sharply dropping 1.63% for the Dow Jones, 1.60% for the Nasdaq and 1.65% for the S&P 500.

At the same time, Fed Chairman Jerome Powell sought to reassure the financial world about the recent banking crisis by indicating that the money of American savers was "safe" and that the banking system remained solid.

For their part, European markets, which closed before the Federal Reserve's announcement, ended on a mixed trend: Paris gained 0.26%, London 0.41% and Frankfurt 0.14%, but Milan gave up 0.12%.

Walking a tightrope, torn between the imperative to raise interest rates to fight stubborn inflation and the temptation to curb these hikes in order to avoid further banking upheavals, the Fed has chosen to raise rates only modestly.

Jerome Powell argued that the banking crisis had the potential "to weigh on economic activity" even if "all savers' money" was "safe".

In other words, the banking episode that saw the collapse of two US regional banks and the takeover of Credit Suisse at a knock-down price by its competitor UBS, tightened financial conditions, doing the work of a new rate hike.

"Such a tightening of financial conditions is in line with a tightening of rates. You can see it as the equivalent of a rate hike or maybe more than that," Powell said at his press conference.

Despite Jerome Powell's assurances that the banking system is "sound", fears around US regional banks have not yet completely disappeared. First Republic, which had taken off 30% on Tuesday thanks to the authorities' lifelines, fell 15.47%.

The Californian institution Pacwest also collapsed 17.12% after indicating that it had recorded the withdrawal of 20% of its customers' deposits.

U.S. Treasury Secretary Janet Yellen added to Wall Street's concerns by telling the U.S. Senate that there were no plans to significantly increase bank deposit coverage, currently limited to $250,000.

The European banking sector held steady, according to the broader Eurostoxx 600 Bank index.

In the bond market, yields on 10-year US Treasuries eased largely to 3.44% from 3.60% the previous day.

After the Fed on Wednesday, it will be the turn of the Bank of England on Thursday to decide on its monetary policy while inflation started to rise again in February to 10.4%, when economists were betting on a decline. British government bond yields jumped to 3.45% for the 10-year maturity.

European real estate suffers from interest rates

The real estate sector had been the most penalized Wednesday before the Fed's announcements. A note from Morgan Stanley estimates that the share prices of most European companies in the sector will fall in the face of high interest rates.

URW fell 7.50% in Paris, Vonovia 4.50% and Deutsche Wohnen 2.29% in Frankfurt, CTP 2.12% in Amsterdam and British Land 6.89% in London.

Sodas gas

British soda maker Fevertree soared 9.46% in London, after reporting better-than-expected results in 2022.

On the oil and currency side

Oil rose after an unexpected rise in U.S. hydrocarbon inventories.

The barrel of Brent from the North Sea for delivery in May appreciated by 1.81%, to close at 76.69 dollars. That of West Texas Intermediate (WTI) US, also maturing in May, gained 1.75%, to 70.90 dollars.

The dollar slipped against the euro, the greenback giving up 0.80% around 20:35 GMT, to 1.0857 dollar per euro, the lowest in a month and a half. Earlier, it had fallen to $1.0912.

© 2023 AFP