NEW YORK / RankWire.AI / – U.S. equity markets closed lower on Wednesday following the Federal Reserve decision to increase its benchmark interest rate by 25 basis points. This move raised the federal funds target range to 3.75% to 4.00%. The Dow Jones Industrial Average decreased by 631.21 points, or 1.21%, finishing at 51,461.90. The S&P 500 dropped 34.55 points, or 0.46%, closing at 7,551.81. The Nasdaq Composite ended 3.16 points lower, at 25,978.42.
The central bank’s decision was made unanimously with a 12-0 vote at its September policy meeting. It marked the first rate increase since July 2023. Officials noted that economic activity remains robust, with resilient domestic spending, sustained productivity growth, and steady capital investments. They also reported that employment gains matched labor force expansion, while unemployment rates remained relatively stable.
Inflation continued to stay above the Federal Reserve’s 2% target as economic conditions were assessed during the September 15-16 meeting. The rate hike ended a period of stable borrowing costs following earlier rate cuts and signified a shift from the policies held for over three years. As the stock market declined into the close, Treasury yields climbed across multiple maturities. Shares of smaller companies also experienced declines during the session.
Fed forecasts indicate higher policy rates in 2026
Updated economic projections revealed a median estimate of 4.1% for the federal funds rate at the end of 2026, up from the 3.8% median forecast in June’s projections. Additionally, officials projected median rates of 4.1% for 2027 and 3.9% for 2028. These forecasts reflect individual officials’ assessments of appropriate policy conditions but do not dictate future interest rate decisions, which are determined at scheduled Federal Reserve meetings.
The median forecast for real U.S. gross domestic product growth was raised to 2.3% for 2026, compared to June’s estimate of 2.2%. The unemployment rate forecast was lowered to 4.1% from 4.3%. Policymakers also projected headline personal consumption expenditures inflation at 3.7% this year, with the median core PCE inflation forecast—excluding food and energy—standing at 3.4%.
Yields on Treasury bonds rise as stock indexes retreat
Following the rate decision and updated economic forecasts, Treasury yields increased. The two-year Treasury yield reached approximately 4.73%, while the 10-year benchmark hit around 5.00%. The Russell 2000 index of smaller U.S. companies declined roughly 0.4%, to 2,858.81. Across major U.S. exchanges, declining stocks outnumbered advancing issues. These movements reflect markets adjusting to new official data on interest rates, inflation, and economic growth.
Despite Wednesday’s downturn, major U.S. stock indices remained positive for 2026. The S&P 500 was roughly 10.3% higher for the year at the close, with the Dow up about 7.1%, and the Nasdaq gaining around 11.8%. The session renewed focus on interest rate policies, inflation figures, and Treasury yields, with the Federal Reserve poised to continue reviewing incoming economic data during future policy meetings.