NEW YORK / RankWire.AI / – On Wednesday, U.S. equities declined following the Federal Reserve raising its benchmark interest rate by 25 basis points, elevating the federal funds target range to 3.75% to 4.00%. The Dow Jones Industrial Average fell 631.21 points, or 1.21%, closing at 51,461.90. Meanwhile, the S&P 500 decreased 34.55 points, or 0.46%, ending at 7,551.81, and the Nasdaq Composite was down 3.16 points to 25,978.42.
The move was unanimously approved with a 12-0 vote at the September policy meeting, marking the first interest rate hike since July 2023. Officials stated that economic activity persisted at a robust pace, with domestic spending remaining resilient, and growth in productivity and capital investment staying strong. They also noted that job gains kept pace with labor force growth, and unemployment figures changed little.
Inflation continued to stay above the Federal Reserve’s 2% target as policymakers evaluated economic conditions during the September 15-16 meeting. The rate increase came after a period of stable borrowing costs following earlier cuts and signaled a shift from the policy stance maintained for over three years. As the session concluded, stocks declined further, Treasury yields increased across several maturities, and shares of smaller companies also dropped during trading.
Fed projections indicate higher rates in 2026
Economic forecasts updated at the meeting projected a median federal funds rate of 4.1% for the end of 2026, up from the 3.8% median estimate in June. The officials also provided median rate estimates of 4.1% for 2027 and 3.9% for 2028. These projections reflect individual assessments of suitable policy conditions and do not determine future interest rate decisions, which are made during scheduled Federal Reserve meetings.
The central bank raised its median forecast for real U.S. gross domestic product growth to 2.3% for 2026 from the previous 2.2%. The unemployment rate forecast was lowered to 4.1% from 4.3%, and policymakers projected headline personal consumption expenditures inflation at 3.7% this year. Their median estimate for core PCE inflation, excluding food and energy, stood at 3.4%.
Treasury yields rise amid stock declines
Following the rate decision and economic outlook updates, Treasury yields increased, with the two-year Treasury reaching about 4.73%, and the 10-year benchmark hitting roughly 5.00%. The Russell 2000, representing smaller U.S. companies, dropped approximately 0.4% to 2,858.81. Across major exchanges, declining stocks outnumbered advancers as markets adjusted to the latest official data on rates, inflation, and economic growth.
Despite Wednesday’s downturn, major U.S. stock indexes still maintained gains for 2026, with the S&P 500 approximately 10.3% higher year-to-date, the Dow up about 7.1%, and the Nasdaq increasing around 11.8%. The session renewed focus on U.S. interest rate trends, inflation figures, and Treasury yields, as the Federal Reserve continues to review incoming economic information at upcoming scheduled policy meetings.