The Federal Reserve raised interest rates for the first time in more than three years, and the S&P 500 pared its earlier gains as Chairman Kevin Warsh warned inflation remains too high. The Dow fell 407 points while the 10-year Treasury yield traded back above 5%.
The S&P 500 fell 0.4% on Wednesday after the Federal Reserve raised the overnight funds rate by a quarter percentage point, bringing the target range to between 3.75% and 4%. The Dow Jones Industrial Average traded down 407 points, or 0.8%, with financial-related shares leading the decline, while the Nasdaq Composite bucked the trend a bit and traded around the flatline.
Warsh flags persistent inflation
Policymakers on the Federal Open Market Committee voted 12-0 to approve the hike, marking its first increase since July 2023, and signaled another hike could come this year. Stocks took the widely expected move in stride at first, but slid during Chairman Kevin Warsh's press conference as he repeatedly stressed that the inflation risk wasn't improving.
According to CNBC: "The plain fact is that inflation is too high, and has been for too long", Warsh said, adding that this summer's inflation readings do not tell him underlying trends have meaningfully improved. The 10-year Treasury yield traded back above 5% as he spoke, reflecting concern the Fed remains behind the curve on inflation even after this rate hike.
Markets had priced in the move
Futures markets were pricing in the quarter-point increase with more than 90% odds just before the decision, up from 33.1% odds a month earlier, according to the CME FedWatch tool. The decision also came amid pressure from the White House to leave rates unchanged.
Yardeni trims S&P 500 target
Yardeni Research president Ed Yardeni cut his year-end S&P 500 target to 7,900 from 8,400, citing higher Treasury yields tied to rising energy prices. The new forecast implies 4.1% upside from Tuesday's close of 7,585.73, down sharply from the 11% gain his prior estimate had implied. Yardeni said the risks of a downturn have increased over the next three to six months.
Source: CNBC (Stock market today: Live updates)
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