The Dow lost 631 points on Wednesday, its worst session in almost a month, after the Federal Reserve raised interest rates for the first time since July 2023.
The quarter-point increase puts the benchmark lending rate in a range of 3.75% to 4%. All 12 policymakers backed it, including Chairman Kevin Warsh. President Donald Trump picked Warsh for the job, which he took over in May, expecting rates to come down.
The Fed’s statement was blunt: “Inflation remains elevated. Today’s policy action will support a timelier return to the Committee’s 2 percent goal.” Officials said prices have climbed since early in the year, mostly because of energy costs linked to the war with Iran. They also named the huge buildout of artificial intelligence infrastructure as an inflation risk.
Warsh told reporters the Fed can only do so much about that. “We cannot affect any individual price, whether it be oil prices, whether it be food,” he said.
How markets took it
The Dow fell 1.21%. The S&P 500 slipped 0.45%, and the Nasdaq finished flat. In bonds, the 10-year Treasury yield closed near 5.01%, its highest since 2007. The dollar index rose more than 0.65%, its best day since June.
Trump pushes back
The president answered within hours on Truth Social. Rates, he wrote, “Should be 1%, or less, because we are the Best Credit in the World, BY FAR.”
Fed officials see more increases ahead. Median projections from 18 officials point to at least one further quarter-point hike this year. Four of them expect a half point more, and two expect none.
