Fed Raises Rates, Hints at More Hikes to Combat Inflation

The Federal Reserve hiked its main interest rate for the first time in three years and hinted at more increases to combat high inflation. The S&P 500 fell 0.4%, while the Dow Jones Industrial Average dropped 631 points, or 1.2%. Investors tend to prefer lower interest rates because higher rates slow economic growth.

Fed Chairman Kevin Warsh said repeatedly in a press conference that inflation remains too high and the U.S. economy appears to be strengthening. This could imply the economy is solid enough to withstand more hikes to rates, and other officials at the Fed provided their own forecasts suggesting rates may need to go still higher.

The median Fed official expects the federal funds rate to end this year at 4.1%, up from its current range of 3.75% to 4%. Traders suspect the Fed may go even further, betting on a 38% probability the Fed could hike the federal funds rate to a range of 4.25% to 4.50% by the end of the year.