Wall Street stocks fell on Wednesday after the Federal Reserve kept interest rates unchanged but signaled in new economic projections that borrowing costs will likely rise by another half of a percentage point by the end of this year.
The Dow Jones Industrial Average plunged 239 points, or 0.7%, to 33,972, while the S&P 500 was flat. The Nasdaq edged up 0.1%.
The S&P 500 reversed early gains after the central bank reacted to a stronger-than-expected economy and a slower decline in inflation.
The new projections added a hawkish tilt to Wednesday’s interest rate decision, showing policymakers at the median see the benchmark overnight interest rate rising from the current 5%-5.25% range to a 5.5%-5.75% range by the end of the year.
“The market has sold off because investors are concerned that there will be possibly at least two more rate hikes between now and the end of the year, with no rate cuts,” said Sam Stovall, Chief Investment Strategist at CFRA Research.
Earlier on Wednesday, a bigger-than-expected drop in U.S. producer prices in May due to a decline in the costs of energy goods and food signaled that inflation was cooling. Data a day earlier showed consumer prices moderated last month.
Traders now see a 70% chance the central bank will raise interest rates in July, up from 60% earlier on Wednesday, according to the CME Fedwatch tool.
Also weighing on the Dow, UnitedHealth Group tumbled 7.6% after the health insurer warned of a spike in medical costs in the second quarter as more older adults undergo non-urgent procedures they had delayed during the pandemic.
Stocks have rallied in recent weeks, lifting the benchmark S&P 500 and Nasdaq to 14-month highs following signs of economic resilience, a better-than-expected earnings season and bets that interest rates are near their peak.