TLDR
- The Fed raised interest rates by 0.25% to a target range of 3.75%-4%, its first hike in three years
- Fed Chair Kevin Warsh warned inflation is still “too high” and conditions are not restrictive enough
- The Dow fell 631 points, while the S&P 500 dropped 0.45% and the Nasdaq was nearly flat
- Bank of America, Wells Fargo, American Express, and Goldman Sachs all fell sharply
- US stock futures rose the following morning on hopes of easing Middle East tensions and falling oil prices
The Federal Reserve raised interest rates on Wednesday for the first time since July 2023, lifting the overnight funds rate by a quarter percentage point to a range of 3.75% to 4%.
The decision was unanimous. The Fed also signaled another hike could come before the end of the year.
Markets initially took the move in stride. But stocks fell sharply once Fed Chair Kevin Warsh began speaking at his post-meeting press conference.
Warsh said inflation remained “too high” and that summer data had not shown meaningful improvement in underlying trends. His comments were seen as more hawkish than markets had expected.
The Dow Jones Industrial Average fell 631 points, or 1.21%, closing at 51,461.90. Goldman Sachs led the decline among Dow components.
The S&P 500 dropped 0.45% to 7,551.81. The Nasdaq Composite ended almost flat, down just 0.01% to 25,978.42.
Bank Stocks Take a Hit
Big bank stocks sold off on fears that higher interest rates could slow lending and weigh on economic growth.
Bank of America and Wells Fargo each fell nearly 3%. Goldman Sachs and American Express dropped close to 4%.
The 10-year Treasury yield rose back above 5%, a level seen as a key psychological threshold for investors. Art Hogan of B. Riley Wealth called that move a potential “headwind for markets in the near term.”
President Donald Trump pushed back on the decision via social media, saying rates should be 1% or less. He later told reporters that current rates were “not appropriate,” though he said he still had confidence in Warsh.
Oil Prices Add Pressure, Then Ease
US diesel prices hit $6 per gallon on Friday for the first time, driven by supply constraints linked to the Ukraine and Iran wars. Crude oil held above $100 a barrel.
Falling oil prices the following day offered some relief. A Reuters report revealed US officials had held secret talks with Yemen’s Houthi group in Oman. The Houthis said they had no plans to attack US or Israeli ships.
Reports also suggested Saudi Arabia could restart a key pipeline at half capacity, easing some supply concerns.
Intel shares rose 4% on news it was in talks with SK Hynix to build semiconductors in the US, helping limit Nasdaq losses.
US stock futures climbed on Thursday morning. S&P 500 futures rose 0.68%, Nasdaq futures gained 0.7%, and Dow futures rose 0.7% to 52,284 points.
Snap rose 2.5% in premarket trading after announcing a partnership with Nvidia, Amazon, and Salesforce to bring its augmented reality glasses to enterprise customers.
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