Stocks Drop Sharply After Fed Chair's Remarks

US stocks fell on Wednesday after the Federal Reserve hiked its main interest rate for the first time in three years and suggested more may be ahead as it tries to get the nation's high inflation under control.

• The S&P 500 fell 33.92 points, or 0.4%, to 7,551.81.
• The Dow Jones Industrial Average fell 631.21 points, or 1.2%, to 51,461.90.
• The Nasdaq composite fell 3.15 points, or less than 0.1%, to 25,978.42.

Investors generally prefer lower interest rates because higher rates slow the economy's growth and undercut prices for stocks and other investments. The stock market initially held onto its modest, early gains after the Fed announced its decision to raise rates. But it weakened as Fed Chairman Kevin Warsh said repeatedly in a press conference following the decision that inflation remains too high and the US economy appears to be strengthening, the AP reports.

That could imply the economy is strong enough to withstand more rate hikes, and other officials at the Fed provided their own forecasts suggesting the federal funds rate may need to go still higher. The median Fed official expects the federal funds rate to end this year at 4.1%, according to forecasts published Wednesday. That's up from the current range of 3.75% to 4% following Wednesday's increase, and it's up from the median forecast of 3.8% that Fed officials gave three months ago. Traders, meanwhile, expect the Fed to go even further. They're betting on a 38% probability that the Fed could hike rates twice more by the end of the year, according to data from CME Group.

• "Our decision comes at a time when the American economy appears to be strengthening," Fed Chairman Kevin Warsh said in his press conference. He pointed to solid US hiring trends, corporate profits, and investments by businesses.
• "The plain fact is that inflation is too high and has been for too long," Warsh said. He later added, "Today's action starts to show we're serious about this." It's the first hike to rates by the Fed in three years. The central bank had been on pause for months following cuts to interest rates through 2024 and 2025, even though inflation has consistently stubbornly remained above the Fed's 2% target.

On Wall Street, bank stocks fell to some of the market's sharper losses. A slower US economy could mean less demand for loans from them. Banks also get hurt when the gap narrows between short-term interest rates and longer-term ones because the industry makes profit off the difference. Huntington Bancshares fell 5.6%, Citizens Financial Group sank 4.8%, and JPMorgan Chase slipped 1%.

The largest loss in the S&P 500 came from JBHunt Transport Services, which lost 13.3%. Its chief financial officer told a conference of analysts late Tuesday that it's facing higher costs and expects its earnings to drop 5% to 10% from the second quarter to the third. elping to limit the market's losses were gains for some influential stocks in the artificial-intelligence industry. Nvidia rose 0.8%, and Advanced Micro Devices climbed 1.6% to recover more of their losses from earlier in the week. AI stocks slid worldwide on Monday after leaders of the AI industry called for a slowdown in development to address safety issues for humanity.