The move to ease the cost of borrowing had been well telegraphed and was meant to inoculate against global risks washing onto American shores.
Fed chair Jerome Powell said the US central bank decided on a 25-basis-point cut in the rate to "insure against downside risks from weak global growth and trade policy uncertainty".
He told reporters he remains confident in the American economy and sees no sectors ready to go "bust".
Some in the markets, as well as US President Donald Trump, thought the Fed might go for a bigger cut and signal that further easing was on the way, but Powell declined to commit to, or rule out, further cuts.
Moreover, the decision to cut rates on Wednesday wasn't unanimous, with two members voting against.
"Investors quickly came to the conclusion that, with an 8-2 vote and a reluctance to commit to further cuts, the Fed was less dovish than they had believed," said analysts at Moneycorp.
"They marked down equity prices and took the US dollar higher."
The Fed decision sent the US dollar rallying to its highest level in more than two years against the euro and the pound.
On equity markets, Asian stock markets followed Wall Street lower.
European markets opened lower, but with weaker currencies good for export businesses, they pushed into positive territory as the morning wore on.
The strong dollar made oil more expensive for customers in countries outside the United States, with the two main crude futures contracts losing more than 1.1 percent.
"Commodities should still see some support on easy money flowing throughout all the major central banks in the world," said OANDA Markets senior analyst Edward Moya.
- Trade talks end -
===================
Shanghai stocks finished down 0.8 percent a day after the latest round of US-China trade talks wrapped up in the city.
Negotiators on both sides said talks had been "efficient and constructive" but gave no signs of an imminent resolution to the impasse.
"While the bar has been set pretty low for progress, there was a level of disappointment after the meeting," said VM Markets managing partner Stephen Innes.
"The fact that they couldn't agree on the G-20's soft-peddled concessions is a worrying sign."
Investors are now turning their attention to key US economic data, including ISM's nationwide manufacturing index, which will be announced later Thursday, and Friday's employment data.
- Key figures around 1000 GMT -
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London - FTSE 100: UP 0.2 percent at 7,602.37 points
Frankfurt - DAX 30: UP 0.4 percent at 12,232.89
Paris - CAC 40: UP 0.7 percent at 5,558.54
EURO STOXX 50: UP 0.6 percent at 3,486.42
Tokyo - Nikkei 225: UP 0.1 percent at 21,540.99 (close)
Hong Kong - Hang Seng: DOWN 0.8 percent at to 27,565.70 (close)
Shanghai - Composite: DOWN 0.8 percent at 2,908.77 (close)
New York - Dow: DOWN 1.2 percent at 26,864.27 (close)
Pound/dollar: DOWN at $1.2096 from $1.2152 at 2100 GMT
Euro/dollar: DOWN at $1.1041 from $1.1155
Dollar/yen: UP at 109.08 yen from 108.61
Brent North Sea crude: DOWN 73 cents at $64.32 per barrel
West Texas Intermediate: DOWN 77 cents at $57.81 per barrel