In a widely expected move, the Fed raised interest rates by 25 basis points but recast its outlook to a more cautious stance as a result of the banking stress.

MSCI's broadest index of Asia-Pacific shares outside Japan rose 0.27 percent, while Japan's Nikkei fell 0.50 percent. Australia's S&P/ASX 200 index lost 0.67 percent.

Wall Street ended sharply lower as investors digested the Fed's policy statement and comments from Fed Chair Jerome Powell's press conference.

China's blue-chip CSI 300 Index and the Shanghai Composite Index both fell 0.3 percent, while Hong Kong's Hang Seng Index was up 0.22 percent.

The Fed's statement suggested it was on the verge of pausing interest rate rises, but Powell in his press conference said the central bank would do "enough" to tame inflation and raised the prospect of further increasing rates if it needed to.

Sentiment was also damaged by a comment from US Treasury Secretary Janet Yellen, who told lawmakers that she had not considered or discussed "blanket insurance" for US banking deposits without approval by Congress.

"Despite seeming to rule out rate cuts this year [...] much of the damage seems to have come from Yellen's parallel remarks to Congress right when Jerome Powell was insisting that the banking sector was sound," ING economist Rob Carnell wrote in a note to clients.

"This won't be the final word on either rates or deposit insurance in all likelihood, and a little further homework and collaboration between Fed and Treasury Dept seems probable."

Fed funds futures are now priced for a roughly equal chance that the Fed will lift rates by an additional 25 basis points in May or leave them unchanged, according to CME FedWatch tool.

Global markets have been volatile, with bank shares battered in the past two weeks following the sudden failures of two US lenders an emergency sale of embattled Swiss banking behemoth Credit Suisse.

Regulators and policymakers have scrambled globally to quell contagion risks and ease worries of a banking crisis, but investors remain wary that other small lenders may be vulnerable as credit markets tighten.

In the currency market, the dollar index fell 0.137 percent, with the euro up 0.25 percent at $1.0882.

The yen strengthened 0.43 percent to 130.87 per dollar, while sterling was last at $1.2286, up 0.18 percent.

The yield on 10-year Treasury notes was down 3.2 basis points at 3.468 percent, while the 30-year Treasury bond was down 1.5 basis points to 3.682 percent.

The two-year US Treasury yield, which typically moves in step with interest rate expectations, was down 1.1 basis points at 3.970 percent.

US crude fell 1.11 percent to $70.11 per barrel and Brent was at $75.94, down 0.98 percent on the day.