NEW YORK / RankWire.AI / – U.S. equities declined on Wednesday following the Federal Reserve decision to increase interest rates by 25 basis points, raising the federal funds target range to 3.75% to 4.00%. The Dow Jones Industrial Average dropped 631.21 points, or 1.21%, closing at 51,461.90. Meanwhile, the S&P 500 decreased by 34.55 points, or 0.46%, to 7,551.81, and the Nasdaq Composite declined 3.16 points to finish at 25,978.42.
The rate hike was unanimously approved 12-0 at the September meeting, marking the first increase since July 2023. Policymakers indicated that the economy continued expanding at a solid pace, citing resilient domestic spending, strong productivity growth, and robust capital investment. They also noted that job gains kept pace with the workforce while unemployment remained relatively stable.
Inflation remained a key concern during the September 15-16 gathering, with the Federal Reserve stating that inflation stayed elevated and reaffirming its 2% inflation goal. This decision followed a period of unchanged rates after earlier reductions, making Wednesday’s increase the first shift in monetary policy in over three years. As a result, U.S. stocks moved lower by the close, and bond yields also rose.
Federal Reserve updates economic outlooks
New projections accompanying the rate decision indicated a median 2026 federal funds rate estimate of 4.1%, up from the June projection of 3.8%. The central bank also forecasted a median rate of 4.1% for 2027 and 3.9% for 2028, reflecting individual officials’ assessments of appropriate monetary policy rather than a predetermined path for future decisions.
The officials estimated real U.S. gross domestic product growth at 2.3% for 2026, a slight increase from June’s 2.2%. The median unemployment rate projection decreased to 4.1% from 4.3%, while the median forecast for headline personal consumption expenditures inflation stood at 3.7% for 2026. The median estimate for core PCE inflation, excluding food and energy, was 3.4%.
Bond yields climb amid stock declines
Treasury yields rose during Wednesday’s trading session as major U.S. stock indices fell. The two-year Treasury yield approached 4.73%, and the 10-year yield climbed toward 5.00%. These higher yields followed the Federal Reserve’s quarter-point rate hike and its updated economic outlook. The Russell 2000 index of smaller U.S. companies also dropped about 0.4% to 2,858.81, with declining shares outnumbering advancers across major exchanges.
Despite the declines on Wednesday, major U.S. indexes remained positive for 2026 through the close, with the S&P 500 up roughly 10.3% for the year. The Dow gained approximately 7.1%, while the Nasdaq had increased about 11.8%. The session drew renewed focus on interest rates, inflation, and Treasury yields, as the Federal Reserve’s future policy moves will hinge on upcoming data from scheduled meetings.