Fed Hikes Interest Rates as US Economy Shows Signs of Strengthening

The Federal Reserve raised interest rates for the first time in three years on Wednesday, citing high inflation and a strengthening economy. The hike was expected to slow down the US economy's growth and impact stock prices.

The S&P 500 fell 0.4% after giving up its modest gains from earlier in the day, while the Dow Jones Industrial Average dropped 1.2%. Bank stocks suffered significant losses, with Huntington Bancshares falling 5.6%, Citizens Financial Group sinking 4.8%, and JPMorgan Chase slipping 1%.

Fed Chairman Kevin Warsh emphasized that inflation remains too high and the economy appears to be strengthening, implying more rate hikes may be 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 could hike rates to a range of 4.25% to 4.50% by the end of the year.