Fed Hikes Rates Amid Market Rejection
The Federal Reserve raised interest rates by a quarter of a percentage point on Wednesday, in line with market expectations. The decision was unanimous, with all 12 members of the Federal Open Market Committee (FOMC) voting in favor. However, this did not bode well for stocks, which dropped sharply after the announcement.
The Dow Jones Industrial Average fell by 631 points, and the 2-year Treasury yield rose by more than 7 basis points. This reaction was similar to that seen after the July FOMC meeting and Chairman Kevin Warsh's news conference. The market had been expecting a more dovish tone from the Fed, but Warsh stressed the importance of tackling inflation.
The FOMC's 'dot plot' showed a fairly cohesive group of officials expecting at least one more rate hike this year. However, there was significant disagreement on future interest rates, with eight members expecting another hike in 2027 and nine seeing rates steady or higher in 2028.