NEW YORK / RankWire.AI / – U.S. stocks declined on Wednesday after the Federal Reserve increased its benchmark interest rate by 25 basis points. This move pushed the federal funds target range to 3.75% to 4.00%. The Dow Jones Industrial Average fell 631.21 points, or 1.21%, ending at 51,461.90. The S&P 500 decreased by 34.55 points, or 0.46%, closing at 7,551.81. The Nasdaq Composite closed 3.16 points lower at 25,978.42.
The Fed made this decision unanimously, voting 12-0 at its September policy meeting. It was the first rate increase since July 2023. Officials noted that economic activity remained strong. Domestic spending was resilient. Productivity growth and capital investments stayed firm. The central bank also reported job gains kept pace with the labor force expansion. Unemployment changed little.
Inflation remained above the Fed’s 2% target during the September 15-16 meeting. The rate hike came after a period of stable borrowing costs following earlier cuts. It also marked a shift from policies that had been in place for over three years. Stock prices trended lower into the close. Treasury yields increased across many maturities. Shares of smaller companies also declined during the session.
Fed forecasts show higher policy rate in 2026
Economic projections now suggest a median federal funds rate of 4.1% at the end of 2026. This is higher than the 3.8% median estimate from June’s projections. The forecast also includes median rates of 4.1% for 2027 and 3.9% for 2028. These estimates reflect individual officials’ views on suitable policy conditions. They do not set future interest rate decisions, which the Fed reviews at scheduled meetings.
The officials increased their median forecast for real U.S. gross domestic product growth to 2.3% for 2026, up from 2.2% in June. The median unemployment rate fell to 4.1% from 4.3%. The projection for headline personal consumption expenditures inflation is 3.7% for this year. The median forecast for core PCE inflation, excluding food and energy, stands at 3.4%.
Yields on Treasuries Rise as Major Indices Drop
Treasury yields increased as investors processed the rate decision and updated economic forecasts. The two-year Treasury yield approached 4.73%, while the 10-year benchmark hit about 5.00%. The Russell 2000, which tracks smaller U.S. companies, declined roughly 0.4% to 2,858.81. More stocks fell than rose across key U.S. exchanges. Markets adjusted to the latest official data on rates, inflation, and growth.
Despite Wednesday’s downturn, major U.S. stock indexes still show gains for 2026. The S&P 500 remains roughly 10.3% higher this year. The Dow has increased about 7.1%, and the Nasdaq is up approximately 11.8%. The session underscored ongoing focus on U.S. interest rates, inflation trends, and Treasury yields. The Fed will continue reviewing incoming economic data at upcoming policy meetings.