U.S. Federal Reserve Chairman Jerome Powell speaks at a panel discussion at the University of Zurich in Zurich, Switzerland September 6, 2019.
The S&P 500 was down 0.7% to 2,985.
The door was left open for another rate cut this year but officials were split - seven of 17 officials saw the need for a further 25bp cut this year, and no official forecast more than one rate cut from here.
Economists with Wells Fargo believe the logjam in intrabank lending markets is being caused by required quarterly tax payments from corporations.
The U.S. central bank cut the overnight rate by 25 basis points to a range of 1.75% to 2%, as was widely expected.
Data released on Wednesday showed the effective federal funds rate rose to 2.3% on Tuesday, outside the range of 2% to 2.25% established at the Fed's last meeting.
There was discord over the decision, with three officials dissenting.
"The Fed absolutely lost control over the fed funds rate", said Gennadiy Goldberg, senior rates strategist at TD Securities, noting that the 2.3% effective rate reflected Tuesday's blow-up in the repo market, and adding that the New York Fed's measures since then, including its liquidity injection Wednesday, have probably brought the rate back into line.
Like the stock market, mortgage rates are forward-looking, which is why, over the past few months, they dropped to near-record lows in anticipation of the Fed's rate cut.
"What the Fed's telling you is this is risk management".
The bank said the cut is aimed at shoring up the U.S. economy, amid "uncertainties" about future growth.
Treasury yields pared their losses from earlier in the day.
In recent days, parts of the financial markets have also shown signs of a cash-crunch, temporarily pushing short-term interest rates above the Fed's target and prompting the bank to intervene.
Though the United States economy continues growing at a "moderate" rate and the labour market "remains strong", the Fed said in its policy statement that it was cutting rates "in light of the implications of global developments for the economic outlook as well as muted inflation pressures".
Trump has become a frequent critic of the Fed, arguing that they have kept monetary policy too tight at a time when central banks around the world are cutting rates and the USA dollar is appreciating against most foreign currencies. No "guts", no sense, no vision!
The meeting also happened as China and the USA try to reach a deal to end their ongoing trade war. "A bad communicator!" Trump said in a tweet following the announcement.
The officials' forecast for the USA economy barely changed from the previous predictions in June. Trump has remarked that other countries such as Germany have an advantage because their interest rates are negative, even though negative rates are a sign that those economies are in a recession and may struggle to grow in the longer term. Even with the decline, the benchmark index remains within 1.5% of its all-time high set in July.
Energy shares fell broadly after Trump told Treasury Secretary to "substantially increase" sanctions on Iran after a series of attacks targeting Saudi Arabia's oil production.