Fed Hikes Interest Rates as Traders Bet on Further Increases

The US Federal Reserve (Fed) raised interest rates for the first time in three years, despite concerns that higher rates could slow down the economy. The Fed's decision was announced on Wednesday and saw the S&P 500 fall 0.4%, while the Dow Jones Industrial Average dropped 1.2%.

Fed Chairman Kevin Warsh emphasized that inflation remains too high and the US economy is strengthening, which could imply more rate hikes are necessary. 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 are betting on a 38% probability that the Fed will hike rates to a range of 4.25% to 4.50% by the end of the year, according to data from CME Group. Oil prices eased, with Brent crude falling 2.7% to $105.83.

The AI industry saw some gains, with Nvidia rising 0.8% and Advanced Micro Devices climbing 1.6%, while bank stocks fell due to concerns about a slower US economy and reduced demand for loans.