NEW YORK / RankWire.AI / – After the Federal Reserve increased its benchmark interest rate by 25 basis points, U.S. equities closed lower on Wednesday. This move pushed the federal funds target range to 3.75% to 4.00%. The Dow Jones Industrial Average fell by 631.21 points, or 1.21%, finishing at 51,461.90. Meanwhile, the S&P 500 dropped 34.55 points, or 0.46%, ending at 7,551.81. The Nasdaq Composite closed 3.16 points lower at 25,978.42.
The central bank’s decision received unanimous approval with a 12-0 vote during its September policy meeting. It marked the first interest rate hike since July 2023. Officials indicated that economic activity continued to grow at a healthy pace. Domestic expenditure remained robust, with productivity growth and capital investments staying strong. The Fed also reported that employment gains kept pace with labor force expansion and that unemployment rates remained relatively steady.
Inflation persisted above the Fed’s 2% target as the policymakers examined the economic landscape during the September 15-16 meeting. The rate increase signaled a departure from the period of stable borrowing costs following previous cuts. It also signified a shift from the policies that had been in place for over three years. U.S. stock markets declined toward the close, and Treasury yields increased across various maturities. Shares of smaller companies also experienced declines during the trading session.
Federal Reserve forecasts indicate higher policy rate in 2026
The latest economic projections pointed to a median federal funds rate of 4.1% by the end of 2026, up from the 3.8% median estimate shown in the June forecast. The projections also included median rate estimates of 4.1% for 2027 and 3.9% for 2028. These figures reflect individual officials’ judgments of appropriate policy conditions and do not determine future rate decisions, which are reviewed during scheduled Fed meetings.
The policymakers also increased their median forecast for U.S. real GDP growth to 2.3% in 2026, compared to the June estimate of 2.2%. The median unemployment rate forecast was lowered to 4.1% from 4.3%. For inflation, they projected headline personal consumption expenditures (PCE) inflation at 3.7% for this year, with a median core PCE inflation forecast of 3.4%, excluding food and energy prices.
Yields on Treasury bonds rise as major indices retreat
Following the rate decision and updated economic outlook, Treasury yields increased. The two-year Treasury reached approximately 4.73%, while the 10-year benchmark moved close to 5.00%. The Russell 2000 index of smaller U.S. firms declined around 0.4%, ending at 2,858.81. Across major U.S. exchanges, declining stocks outnumbered advancers. These movements reflect the markets’ adjustments to the latest data on interest rates, inflation, and economic growth.
Despite Wednesday’s downturn, the major U.S. stock indexes still show gains for 2026. The S&P 500 remains roughly 10.3% higher for the year, with the Dow up about 7.1%, and the Nasdaq climbing around 11.8%. The recent session brought renewed attention to U.S. interest rates, inflation figures, and Treasury yields. The Federal Reserve will continue to analyze incoming economic information at upcoming scheduled policy meetings.