Fed Hikes Rates for First Time in Three Years Amid Rising Inflation

The Federal Reserve increased interest rates for the first time in three years, citing high inflation and a strengthening economy. The S&P 500 sank 0.8% after giving up an early gain, with the Dow Jones Industrial Average dropping 757 points or 1.5%, and the Nasdaq composite falling 0.5%. Fed Chairman Kevin Warsh stated that 'inflation is too high and has been for too long' and that 'today's action shows we're serious about this.'

The increase in interest rates was met with a decline in bank stocks, particularly JPMorgan Chase, which fell 2% on the news. The two-year Treasury yield jumped to 4.73%, while the 10-year yield rose to 5.01%. Investors are concerned that higher interest rates will slow economic growth and reduce stock prices.

The Fed's decision was also reflected in international markets, with indexes rising across much of Europe and Asia. South Korea's Kospi climbed 1.4%, one of the world's biggest gains. The median Fed official expects the federal funds rate to end this year at 4.1%, up from the current range of 3.75% to 4% following Wednesday's increase.