US equity markets initially opened higher on Wednesday but turned sharply lower after the Federal Reserve raised its benchmark interest rate by 25 basis points to a target range of 3.75% to 4%. The Federal Open Market Committee approved the decision unanimously in a 12-0 vote, and Fed Chair Kevin Warsh warned that inflation remains too high.
Market reaction was decisively negative: the Dow Jones Industrial Average fell 718 points, the S&P 500 declined 0.64%, and the Nasdaq Composite slipped 0.31%. Bank stocks were hit hardest, with Bank of America and Wells Fargo each down 3% and JPMorgan Chase down 1.9%. The 10-year Treasury yield remained near the key 5% level at 5.008%, while the two-year yield rose to 4.717%.
Warsh acknowledged that the Fed cannot directly lower oil prices or reopen the Strait of Hormuz, but argued that the central bank can prevent energy-driven price increases from spreading through the broader economy. “We can't affect any individual price, whether it be oil prices, whether it be foodstuffs at the grocery store,” he said. He added that recent summer inflation readings had not demonstrated meaningful improvement.
Before the decision, futures markets priced a 92.7% probability of a quarter-point hike. The Fed’s updated projections showed 16 of 18 participants expect at least one additional increase, while four officials see the possibility of two more hikes. Officials also projected one rate cut in 2028 and at least one more in 2029.
Oil prices eased after reports that Saudi Arabia was offering additional crude cargoes through Oman. Brent crude fell 1.7% to $106.88 a barrel, while West Texas Intermediate dropped 2.7% to $103. Consumer prices rose 3.4% year over year in August, with core inflation up 0.3% month over month, exceeding expectations.
For cryptocurrency markets, the hawkish Fed stance and elevated yields are likely to weigh on risk appetite, as tighter liquidity typically reduces demand for speculative assets including Bitcoin and Ethereum.
