Wall Street stocks dropped and the dollar rallied Wednesday after the Federal Reserve kept interest rates unchanged, but signaled it could lift them again this year.

The Fed decision, which was in line with expectations, postpones another immediate painful rise in the cost of mortgages and other loans.

But analysts rated the move a "hawkish pause" because Federal Reserve Chair Jerome Powell again refused to declare it the end of the central bank's cycle of interest rate increases.

"The Fed is not done with raising interest rates," added Kathy Lien, a foreign exchange expert at BK Traders. "I think there's more rate hikes ahead."

The dollar rallied against the euro and other major currencies, while all three major indices finished in the red.

The broad-based S&P 500 lost 0.9 percent.

In a press conference, Powell offered a positive assessment of US consumer health and the labor market, an outlook that keeps alive the chance of averting recession.

But this also likely means that interest rates will remain higher for longer.

Forecasts released by the central bank point to one more rate hike in 2023 and just two interest rate cuts in 2024, down from the prior projection of four cuts next year.

The Fed Chair did not really "lean into the potential for cutting," said Art Hogan from B. Riley Wealth Management.

After 11 interest rate increases since March last year, inflation has fallen sharply but remains above the Fed's long-run target of two percent, keeping pressure on officials to consider further policy action.

"The US economy is too strong and this rate hiking cycle will last a lot longer than Wall Street wants," said Oanda's Edward Moya.

Earlier Wednesday, London, Paris and Frankfurt all closed with solid gains.

- Fed not alone -

A slew of central banks will also make rate decisions on Thursday in Britain, Switzerland, Sweden, Norway, Turkey, Indonesia and South Africa.

The Bank of England had been universally expected to raise its own rate again but data on Wednesday showed UK inflation unexpectedly struck an 18-month low in August.

The market still sees a hike as likely but no longer a foregone conclusion.

"Weaker inflation fuels the argument that interest rates no longer need to go up, or at least not by much more," said AJ Bell investment director Russ Mould.

After the Fed and BoE, traders will be keeping an eye on the Bank of Japan on Friday, with officials in Tokyo recently hinting it could begin drifting away from its long-running policy of not raising interest rates.

Pressure has been building on officials to act as the yen continues to weaken and inflation pushes higher.

- Key figures around 2105 GMT -

New York - Dow: DOWN 0.2 percent at 34,440.88 (close)

New York - S&P 500: DOWN 0.9 percent at 4,402.20 (close)

New York - Nasdaq: DOWN 1.5 percent at 13,469.13 (close)

London - FTSE 100: UP 0.9 percent at 7,731.65 (close)

Frankfurt - DAX: UP 0.8 percent at 15,781.59 (close)

Paris - CAC 40: UP 0.7 percent at 7,330.79 (close)

EURO STOXX 50: UP 0.8 percent at 4,275.98 (close)

Tokyo - Nikkei 225: DOWN 0.7 percent at 33,023.78 (close)

Hong Kong - Hang Seng Index: DOWN 0.6 percent at 17,885.60 (close)

Shanghai - Composite: DOWN 0.5 percent at 3,108.57 (close)

Euro/dollar: DOWN at $1.0664 from $1.0692 on Tuesday

Pound/dollar: DOWN at $1.2342 from $1.2383

Dollar/yen: UP at 148.22 yen from 147.61 yen

Euro/pound: UP at 86.35 pence from 86.34 pence

Brent North Sea crude: DOWN 0.9 percent at $93.53 per barrel

West Texas Intermediate: DOWN 1.0 percent at $90.28 per barrel