NEW YORK / RankWire.AI / – Following the Federal Reserve decision to increase interest rates by 25 basis points, US equity markets closed lower on Wednesday. The new rate lifted the federal funds target range to 3.75% to 4.00%. The Dow Jones Industrial Average declined by 631.21 points, or 1.21%, finishing at 51,461.90. The S&P 500 decreased by 34.55 points, or 0.46%, ending at 7,551.81. Meanwhile, the Nasdaq Composite fell 3.16 points to close at 25,978.42.
The rate hike was unanimously approved by the Federal Reserve’s 12 members at September’s meeting. This marked the first increase since July 2023. Policymakers highlighted that economic activity continued to grow at a solid pace, citing persistent domestic spending, strong productivity growth, and vigorous capital investments. The central bank also noted that employment gains had kept pace with the workforce, and unemployment remained relatively unchanged.
Inflation was a key focus during the September 15-16 gathering. The Federal Reserve stated that inflation stayed elevated and reaffirmed its 2% inflation target. The decision followed a period where rates had been held steady after earlier reductions. Wednesday’s rate increase represented a shift in monetary policy for the first time in over three years. As a result, U.S. stocks moved lower by the close, with bond yields also climbing.
Federal Reserve updates economic forecasts
The new projections released alongside the decision indicated a median federal funds rate estimate of 4.1% for 2026. This is up from the 3.8% median forecast in June. The central bank’s officials also projected a median rate of 4.1% for 2027 and 3.9% for 2028. These forecasts reflect individual officials’ views on appropriate monetary policy and do not prescribe a fixed path for future Fed actions.
The policymakers estimated that real U.S. gross domestic product growth would be 2.3% in 2026, slightly higher than the 2.2% median forecast in June. They also lowered their median unemployment rate projection to 4.1% from 4.3%. Inflation estimates for headline personal consumption expenditures were set at 3.7% for 2026, with a median core PCE inflation forecast of 3.4%, excluding food and energy.
Treasury yields climb amid stock market retreat
Treasury yields increased during Wednesday’s trading session, paralleling declines in major U.S. equity indices. The two-year Treasury yield reached approximately 4.73%, while the 10-year benchmark moved to around 5.00%. The rise followed the Federal Reserve’s quarter-point rate hike and the release of its updated economic outlook. The Russell 2000 index of smaller U.S. companies also dropped about 0.4% to 2,858.81. Across the main U.S. exchanges, declining stocks outnumbered advancers.
Despite the drop on Wednesday, the primary indexes remained positive for 2026 through the close. The S&P 500 was up roughly 10.3% for the year, the Dow had gained about 7.1%, and the Nasdaq advanced approximately 11.8%. The session drew renewed focus on interest rates, inflation, and Treasury yields across financial markets. The Federal Reserve’s upcoming decisions will depend on data reviewed at future policy meetings.