The Dow Jones index lost 1.63% to 32,030.11 points, the tech-dominated Nasdaq dropped 1.60% to 11,669.96 points and the S&P 500 fell 1.65% to 3,936.97 points.

The Central Bank raised rates by only a quarter of a percentage point and signaled that it was considering only one more such hike in the short term.

Overnight rates are now in the range of 4.75% to 5.00%. Inflation hovered at 6% year-on-year in February, according to the CPI consumer price index.

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

The recent turmoil saw the collapse of two US regional banks, Silicon Valley Bank and Signature Bank, while in Switzerland, Credit Suisse had to be bought in extremis and at knock-down prices by its competitor UBS.

On the rates and inflation front, "the statement was rather +dove+", that is to say favorable to a looser monetary policy, said Peter Cardillo of Spartan Capital Securities. But Jerome Powell "also said that it was difficult to predict a recession," he said.

This more lax tone, briefly welcomed by stock market indices in session, finally weighed down Wall Street, which sees it as a way for the Fed to compensate for the tightening of financial conditions caused by the banking crisis, noted Karl Haeling of LBBW.

"Financial conditions have tightened and probably more than traditional indicators show," Powell said. The Committee's statement warned that the recent banking crisis was "likely (...) to influence economic activity".

The head of the institution also stressed that the Fed was "determined to learn the lessons of the episode" banking and warned that more regulation and supervision were needed.

"As soon as we talk about more regulation, it's a negative point for equities," Cardillo said.

The bond market welcomed the Fed's moderate tone, with yields on 10-year Treasuries easing to 3.44% from 3.60% the previous day. As for the dollar, it collapsed by nearly 1% against the euro.

On the value side, the shares of US regional banks, which had rebounded strongly the day before, plunged. First Republic lost 15.47% and Western Alliance Bancorporation almost 5%.

California-based bank PacWest, which announced Wednesday that its deposits had shrunk by 20%, saw its stock fall 17.12% to $10.12.

Of the eleven sectors of the S&P, banks (-2.44%) and real estate were the red lanterns.

The highly volatile and mascot stock of small carriers GameStop jumped 35.18%.

The video game distributor made its first profit in two years in the fourth quarter, but much more because of cuts in its operating costs than because of the health of its sales, which are declining.

The company specializing in space launches for small satellites Virgin Orbit, struggling a few months after the failure of a major operation, soared 33.12% to 59 cents.

The company, whose operations had been put on "pause" by British billionaire Richard Branson last week "in order to keep its capital", plans to resume its activity Thursday.

© 2023 AFP