Key facts
- The Federal Reserve held interest rates steady but signaled a potential rate hike later this year.
- Nine Fed officials projected at least one rate hike by the end of 2026.
- The Fed removed language indicating a likelihood of rate cuts this year.
- US stocks, including the S&P 500 and Nasdaq, closed down more than 1%.
- The US dollar strengthened, and Treasury yields rose following the announcement.
Wall Street stocks reversed earlier gains and closed lower on Wednesday, with the dollar extending its rise and Treasury yields creeping higher, after the U.S. Federal Reserve left its key interest rate unchanged but signaled that a rate hike could be in the cards before the end of the year amid elevated inflation and solid economic data. The central bank removed the "easing bias" language from its accompanying policy statement, and new quarterly projections showed that nine Fed officials anticipate a rate hike before year-end. Policymakers have grown more pessimistic about inflation, now seeing year-end PCE inflation of 3.6% by 2027, up from 2.7% in March. In his first meeting as Fed Chair, Warsh told reporters the central bank would deliver on price stability. Breaking with past practices by Fed chiefs, Warsh did not submit an interest-rate-path projection as part of quarterly forecasts. Policymakers had been widely expected to hold interest rates unchanged at the 3.50%-3.75% range as they wrestled with inflation pressures from the oil-price spike during the Iran war. After the meeting, short-term U.S. interest-rate futures were pricing in a bigger chance that the Federal Reserve will deliver a rate hike as soon as September than opt to keep rates where they are, according to CME Group's FedWatch tool. Bets that rates would hold steady by year-end were around 13% versus 40% on Tuesday. Rosenblatt's James noted that regional banks would be hurt more by higher rates. He also pointed to a 2.3% decline in the State Street SPDR S&P 500 homebuilders ETF as higher rates also tend to put pressure on housing. Stock moves had been muted ahead of the Fed meeting. Wall Street's main indexes had rallied sharply from Thursday through Monday as oil prices fell after President Donald Trump announced a preliminary U.S.-Iran peace deal. Oil prices edged back up on Wednesday after Trump said the agreement with Iran was not final and that the war could resume if he is unsatisfied. Earlier in the day, economic data showed U.S. retail sales increased more than expected in May, with households purchasing more cars and other vehicles even as they paid higher prices for gasoline. In individual stocks, shares of Elon Musk's SpaceX closed down 4.9%, in the space and AI company's first decline since its market debut on Friday. CME Group slipped 3.5% after the exchange operator said its CEO, Terry Duffy, will step down on March 1, and transition to the role of executive chairman. Shares of Allbirds soared 39% after the footwear maker-turned-AI company changed its name to Smartbird and appointed former Amazon executive Nadia Carlsten as CEO.