US stocks ended sharply lower on Wednesday, as comments from Fed Chair Jerome Powell shattered initial optimism over a Fed policy statement that raised interest rates by 75 basis points but signaled that smaller rate hikes may be on the horizon.

In a volatile trading session, equities initially moved higher in the wake of the hike by the Fed, the fourth straight increase from the central bank of that magnitude as it attempts to bring down stubbornly high inflation.

The Dow Jones fell 1.55 percent to 32,147, the S&P 500 lost 2.5 percent to 3,759 and the Nasdaq dropped or 3.36 percent to 10,524.

The target federal funds rate was set in a range between 3.75 percent and 4.00 percent, but the impact of the hike was initially tempered by new language that suggested the central bank was mindful of the effect its outsized rate hikes have had on the economy.

Investors had been widely anticipating a 75-basis point rate hike, while hoping the Fed would signal a willingness to begin downsizing the rate hikes at its December meeting.

However, comments from Fed Chair Jerome Powell that it was "very premature" to be thinking about pausing rate hikes sent stocks sharply lower.

"It is one speech, maybe it is a moment of frustration. I don’t think he should have done it the way he did this. But I understand why he did it, and in the big picture of things, he is doing the right thing right now," said Stephen Massocca, senior vice president at Wedbush Securities in San Francisco. "Ultimately this will be good for the economy and good for the market."

After a strong rally in October that saw the Dow Industrials post their biggest monthly percentage gain since 1976 and the S&P rally about 8 percent, the three major indexes on Wall Street have now fallen for three straight sessions. Wednesday's decline was the largest percentage drop for the S&P 500 since October 7. (Reuters)