NEW YORK / RankWire.AI / – U.S. equities closed lower on Wednesday following the Federal Reserve increasing its benchmark interest rate by 25 basis points. This move pushed the federal funds target range up to 3.75% to 4.00%. The Dow Jones Industrial Average declined 631.21 points, or 1.21%, ending at 51,461.90. The S&P 500 dropped 34.55 points, or 0.46%, to close at 7,551.81. The Nasdaq Composite finished 3.16 points lower at 25,978.42.
During its September policy meeting, the Federal Reserve unanimously approved the rate hike with a 12-0 vote. This was the first increase since July 2023. Officials indicated that economic activity persisted at a robust rate, with domestic expenditure remaining steady, and productivity growth and capital investments staying strong. The central bank also noted that employment gains kept pace with labor force growth and that unemployment remained largely unchanged.
Inflation stayed above the Federal Reserve’s 2% target as policymakers examined the economic landscape at the September 15-16 gathering. The rate hike marked a departure from a period of stable borrowing costs following earlier reductions and signaled a shift from the policy stance maintained for over three years. As the market closed, U.S. stocks continued their downward trend while Treasury yields increased across multiple maturities. Shares of smaller companies also experienced declines during the trading session.
Federal Reserve projections indicate higher policy rate in 2026
Revised economic forecasts now suggest a median federal funds rate of 4.1% by the end of 2026, up from 3.8% in the June projections. The forecasts also include median estimates of 4.1% for 2027 and 3.9% for 2028. These projections reflect individual officials’ views on suitable policy conditions and do not determine future rate decisions, which are made at scheduled Federal Reserve meetings.
The officials also increased their median forecast for real U.S. gross domestic product growth to 2.3% in 2026, up from 2.2% projected in June. The median unemployment rate estimate was lowered to 4.1% from 4.3%. Policymakers also projected headline personal consumption expenditures inflation at 3.7% this year, with a median forecast for core PCE inflation—excluding food and energy—standing at 3.4%.
Yields on Treasury securities increase amid stock decline
Following the rate decision and updated economic outlook, Treasury yields rose, with the two-year Treasury reaching about 4.73%, and the 10-year benchmark climbing to approximately 5.00%. The Russell 2000 index of smaller U.S. companies fell roughly 0.4% to 2,858.81. Across major U.S. exchanges, declining stocks outnumbered advancers as markets adjusted to new data on rates, inflation, and economic growth.
Despite Wednesday’s setbacks, the primary U.S. stock indexes still posted gains for 2026. The S&P 500 remained approximately 10.3% higher for the year, the Dow had increased about 7.1%, and the Nasdaq was up around 11.8%. The session renewed focus on U.S. interest rates, inflation figures, and Treasury yields, with the Federal Reserve set to continue reviewing upcoming economic data at future policy meetings.