U.S. stocks dropped Wednesday after Federal Reserve projections showed half of policymakers expect at least one interest rate increase this year, fueling concerns that tighter policy could pressure the economy and financial markets.
By yourNEWS Media Newsroom
U.S. stocks fell Wednesday after new Federal Reserve projections raised investor concerns that interest rates could increase later this year as policymakers continue working to control inflation.
The S&P 500 declined 1.2%, reversing an earlier modest gain after the Fed released updated projections showing that nine of 18 policymakers expect at least one increase in the central bank’s main interest rate this year.
The Dow Jones Industrial Average swung from a morning gain of 280 points to a loss of 507 points, or 1%. The Nasdaq composite fell 1.3%.
Higher interest rates can help slow inflation by reducing demand, but they also make borrowing more expensive, can weaken economic growth and often weigh on stock and bond prices.
The Federal Reserve kept its benchmark federal funds rate unchanged at Wednesday’s meeting, as it has done all year. Still, the new projections unsettled Wall Street because they suggested a possible shift toward tighter policy later in 2026.
Fed Chairman Kevin Warsh did not provide his own forecast for where the federal funds rate may end the year.
During his first press conference as head of the U.S. central bank, Warsh said he is considering changes to the way the Fed communicates with markets, businesses and households.
One of his first steps was to remove hints from Fed statements about where interest rates may be headed, a practice known as forward guidance.
Warsh said he wants investors to respond directly to incoming reports on inflation, the labor market and the broader economy, rather than focusing primarily on how they expect the Fed to interpret those reports.
He also said the central bank may consider changes to its quarterly projections, which show where Fed officials expect interest rates, inflation and the economy to move.
Warsh cautioned that he “didn’t hear tons of conviction” behind the latest projections, but markets still reacted sharply.
Stocks moved up and down several times after the Fed announcement before finishing lower.
Treasury yields rose in the bond market. The yield on the 10-year Treasury, which helps influence mortgage rates and other loans for households and businesses, climbed to 4.49% from 4.43% late Tuesday.
The two-year Treasury yield, which more closely reflects expectations for Fed policy, jumped to 4.21% from 4.05%.
Traders increased bets that the Fed will raise rates at least once this year. According to CME Group data, markets now see an 84% probability of at least one rate increase, up from 59.5% one day earlier.
High bond yields around the world, driven by inflation concerns, have already pressured economies and weighed on investment prices.
Several large technology stocks helped drag the broader market lower.
SpaceX lost 4.9%, marking its first decline since its high-profile debut on the U.S. stock market last week.
Microsoft fell 3.8%, Amazon dropped 3.5% and Nvidia declined 1.3%. Those three companies were among the heaviest weights on the S&P 500.
Their losses overshadowed a 14.8% gain for La-Z-Boy, which reported stronger quarterly profit and revenue than analysts expected. The company benefited from revenue at newly opened stores, though Chief Financial Officer Taylor Luebke said La-Z-Boy continues to take “a measured view” of the broader sales environment.
The S&P 500 fell 91.25 points to 7,420.10. The Dow dropped 507.12 points to 51,492.55. The Nasdaq composite declined 354.69 points to 26,021.66.
Economic data released Wednesday showed that retail sales grew faster in May than economists had expected, suggesting consumer spending may continue supporting the economy.
Still, persistent inflation has left many U.S. shoppers feeling more pessimistic about their finances.
Oil prices were steadier Wednesday after falling earlier in the week on optimism surrounding a tentative U.S.-Iran agreement that could help restore global oil flows.
Iran is expected to begin reopening the Strait of Hormuz once the agreement is signed, allowing oil tankers to again move crude from the Persian Gulf. A resumption of normal shipping could help ease pressure on inflation.
Brent crude rose 0.7% to $79.55 per barrel. The price remains above the roughly $70 level seen before the war but is well below the more than $100 per barrel it reached several weeks ago.
Global stock markets were mixed.
South Korea’s Kospi rose 1.6%, while Hong Kong’s Hang Seng fell 0.7%, marking two of the larger moves among international indexes.
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