- Wall Street indices fell sharply after Fed Chair Warsh warned inflation remains too high
- Dow dropped 756 points, S&P 500 and Nasdaq also declined in late-afternoon trading
- Fed raised rates by 25 basis points, signaling more hikes likely through 2026
Wall Street indices slumped into the red in late-afternoon trading after Federal Reserve Chair Kevin Warsh warned that inflation remains "too hot." At 3:15 pm EST, the Dow Jones Industrial Average had plummeted 756 points, or 1.45%, to 51,336.85. The S&P 500 was trading 0.81% lower at 7,524.64, while the Nasdaq Composite was down 0.31% at 25,867.46.
Market sentiment flipped sharply during Warsh's press briefing. The Fed Chair noted that recent economic trends have shown little evidence that inflation is slowing to target levels, emphasizing that policymakers are focusing on broad trends rather than noisy individual data points. His comments indicated that the Federal Open Market Committee (FOMC) is preparing for a prolonged hawkish cycle, requiring persistent efforts to drag inflation back to its medium-term target of 2%.
The sudden reversal erased what had initially been a positive market reaction to the Fed's long-awaited policy move. Earlier in the afternoon, Wall Street had given a thumbs up to the rate decision. Immediately following the 2:00 pm policy announcement, the S&P 500 had edged 0.42% higher to 7,617.96, the tech-heavy Nasdaq had climbed 0.61% to 26,138.96, and the Dow had hovered near the flatline.
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That initial equity rally reflected market relief that the Warsh-led FOMC sees the broader economy on stable footing. In its policy statement, the central bank noted that economic activity is expanding at a solid pace, supported by domestic spending that has remained resilient despite prevailing macro uncertainty.
ALSO READ: Fed Delivers First Rate Hike In Three Years As Kevin Warsh Starts Battling Inflation
The central bank's decision to raise benchmark lending rates by 25 basis points came as no surprise to equity investors. The move was heavily priced into the market and aligned perfectly with the CME FedWatch tool, which had shown a 92.9% probability of a quarter-point hike heading into the meeting.
In the bond market, the 10-year Treasury yield had retreated from its recent surge. The benchmark yield slipped by 5 basis points to 4.947% in the minutes immediately following the release of the policy statement.
The central bank also signaled that borrowing costs will remain restrictive. The FOMC reiterated its commitment to delivering price stability, noting that inflation remains elevated. Further tightening is already on the table, with 16 officials projecting at least one more rate hike before the end of 2026.
Fresh projections show the median policy rate resting at 4.1% through both 2026 and 2027. Officials expect a prolonged battle against stubborn prices, forecasting core PCE inflation to remain at 3.4% this year and slowly moderate before finally returning to the central bank's 2% target in 2029.
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