US stocks end midweek lower as Fed raises rates for first time in over 3 years

US stocks closed mostly lower on Wednesday after the Federal Reserve raised interest rates for the first time in more than three years and Chair Kevin Warsh warned that inflation remained persistently high.

The Dow Jones Industrial Average fell 631.33 points, or 1.21%, to 51,461.78.

The S&P 500 declined 33.92 points, or 0.45%, to 7,551.81, while the Nasdaq Composite was nearly flat at 25,978.43.

The Fed unanimously increased its federal funds rate by 25 basis points to a range of 3.75%-4%, marking its first rate hike since July 2023. Policymakers also projected one additional quarter-point increase this year.

Equities initially responded positively to the widely anticipated decision but reversed course as Warsh emphasized persistent price pressures during his post-meeting news conference.

“The plain fact is that inflation is too high, and has been for too long,” Warsh said, adding that inflation readings during the summer did not indicate a meaningful improvement in underlying trends.

The yield on the benchmark 10-year US Treasury note climbed back above the psychologically important 5% threshold, trading around 5.02%.

Banking shares led the decline amid concerns that further rate hikes and elevated borrowing costs could weaken lending and economic activity.

Shares of Bank of America, Wells Fargo, Goldman Sachs and Citigroup fell around 3%, while JPMorgan Chase lost around 1%.

Intel shares rose on reports that the US chipmaker was holding talks with South Korean memory producer SK Hynix about manufacturing semiconductors in the US, helping limit losses on the technology-heavy Nasdaq.

The US dollar index gained around 0.6% to 100.21, its highest level since late July.

Gold futures fell 0.6% to $4,266 per ounce, while US benchmark West Texas Intermediate crude dropped 3.7% to $101.87 per barrel.

European stocks close higher

European stock markets, meanwhile, ended on Wednesday higher, led by gains in technology shares ahead of the Fed’s policy announcement.

The STOXX Europe 600 index rose 0.46% to 637.09 points.

Britain’s FTSE 100 advanced 0.28% to 10,688.47, Germany’s DAX gained 0.53% to 25,537.75 and France’s CAC 40 increased 0.62% to 8,140.59.

Italy’s FTSE MIB recorded the strongest gain among the major European indices, rising 0.8% to 51,969.12, while Spain's IBEX 35 also gained 0.41% to end at 19,635.80.