New York: US stocks declined along with the dollar on Wednesday after the Federal Reserve lifted interest rates again and signaled that it expects more hikes ahead.
The US central bank, as expected, announced it would lift the benchmark lending rate by a half percentage point, a smaller hike after four straight 0.75-point increases.
But several analysts described the announcement on balance as more hawkish than anticipated, with the Fed staying the course despite consumer price data moderating.
Fed Chair Jerome Powell said he was encouraged by the latest consumer inflation figures, but the central bank's policy was still not restrictive enough in light of too-high inflation.
While consumer inflation eased in October and November, Powell said "it will take substantially more evidence to give confidence that inflation is on a sustained downward path."
In their projections, policymakers expect rates would land higher than expected at 5.1 percent next year, according to a median forecast.
Wall Street indices tumbled after the Fed's 1900 GMT statement before partially recovering near the end of Powell's news conference.
The S&P 500 finished down 0.6 per cent at 3,995.32.
The Fed's announcement "certainly did not live up to the market's more hopeful expectations that the Fed might throw the market a carrot," said Briefing.com analyst Patrick O'Hare.
"You have this wet blanket hanging over the market. You have the threat of rates going higher than the market would like."
Trading in the dollar was choppy, but the greenback retreated against the euro and other currencies.
Such a decline is the opposite of what would normally be expected in the US currency from a Fed statement that was more hawkish than expected.
"Although the committee raised next year's median interest rate level to 5.1 per cent, and although Powell talked himself in circles during the press conference about raising the unemployment rate, lowering average hourly earnings ... markets didn't care," said Forex.com's Joe Perry.
Central banks will be back in the news on Thursday, when both the Bank of England and European Central Bank are expected to announce less aggressive rate hikes compared with their recent monetary policy decisions.
On Wednesday, European stocks finished moderately lower, with London losses cushioned by news that UK inflation nudged down in November.
Meanwhile, Frankfurt and Paris also fell despite the Ifo research institute's forecast that Germany's recession could be milder than previously predicted.
Asian stocks rose following Tuesday's rebound on Wall Street.
New York - Dow: DOWN 0.4 percent at 33.966.35 (close)
Elsewhere, oil prices pushed higher, due in part to the continued outage of the Keystone Pipeline, which has been off line for the last week following a leak into a creek in the US state of Kansas.
Key figures around 2140 GMT
New York - S&P 500: DOWN 0.6 percent at 3,995.32 (close)
New York - Nasdaq: DOWN 0.8 percent at 11,170.89 (close)
London - FTSE 100: DOWN less than 0.1 percent at 7,495.93 (close)
Frankfurt - DAX: DOWN 0.3 percent at 14,460.20 (close)
Paris - CAC 40: DOWN 0.2 percent at 6,730.79 (close)
EURO STOXX 50: DOWN 0.3 percent at 3,975.26 (close)
Tokyo - Nikkei 225: UP 0.7 percent at 28,156.21 (close)
Hong Kong - Hang Seng Index: UP 0.4 percent at 19,673.45 (close)
Shanghai - Composite: FLAT at 3,176.53 (close)
Euro/dollar: UP at $1.0684 from $1.0633 on Tuesday
Dollar/yen: DOWN at 135.45 yen from 135.59 yen
Pound/dollar: UP at $1.2424 from $1.2366
Euro/pound: DOWN at 85.96 pence from 85.98 pence
Brent North Sea crude: UP 2.5 percent at $82.70 per barrel
West Texas Intermediate: UP 2.5 percent at $77.28 per barrel