By Hannah Erin Lang, Sam Goldfarb and David Uberti
The Federal Reserve's first statement under Chairman Kevin Warsh clocked in at only 132 words. Wall Street was troubled by the final six of them.
"The Committee will deliver price stability."
The central bank held its benchmark rate steady, as expected, in Kevin Warsh's first meeting as Fed chairman. But officials' quarterly economic projections showed that nine of 19 officials penciled in at least one rate increase by the end of the year, up from none in March.
In a press conference, Warsh also repeatedly emphasized that officials are "unambiguously and unanimously" committed to bringing inflation back to the Fed's 2% target. Investors took that as a sign that the new chairman would preserve the central bank's independence and be open to rate increases, despite his appointment by President Trump, who has strenuously pushed for lower rates.
Stocks fell, as did bond prices, pushing Treasury yields higher. The yield on the 2-year Treasury note, which tends to rise and fall with changes in expectations for short-term rates set by the central bank, jumped above 4.2% in midafternoon trading from under 4.1% before the Fed's rate decision. The 10-year yield, a key barometer for corporate and consumer borrowing costs, climbed to nearly 4.5%.
Every S&P 500 sector lost ground, dragging the broad index down 1.2%. The Dow industrials fell 1% to close 507 points lower. The Nasdaq composite declined 1.3%. Consumer stocks tumbled, including shares of Target, Estée Lauder and Dollar General. Salesforce led declines in the Dow industrials, falling 4.1%.
Only six months ago, most investors had taken for granted that Fed officials would cut rates this year, providing a short-term boost to stocks. The U.S. conflict with Iran scrambled those forecasts, driving oil prices higher and stoking inflation fears.
Even though the U.S. and Iran have reached a deal to stop fighting, analysts have warned that price pressures won't disappear overnight. The impact of the conflict has already shown up in inflation data: The inflation rate climbed to a three-year high of 4.2% in May, the Labor Department said, driven by higher energy costs. That June 10 report helped send the Dow industrials to their worst day of 2026.
"The Fed is at a point where it can't ignore inflation," said Callie Cox, chief market strategist at Ritholtz Wealth Management. "I'm not surprised the world has shifted to a higher interest rate mindset."
Interest-rate futures showed investors see a nearly 90% chance that the Fed will raise interest rates at least once by the end of the year, and roughly 50-50 odds of at least two hikes, according to CME FedWatch.
Investors trying to predict the Fed's next move have a little less material to work with under Warsh: Wednesday's relatively terse statement didn't include forward guidance, and Warsh declined to give any after the meeting.
Even so, his comments on inflation provided a broad sense for his priorities, shifting investors' rate expectations even more than his predecessor, Jerome Powell, had done at some recent meetings.
Though inflation has accelerated, some investors have noted that there are still reasons to be optimistic about the economy: benchmark U.S. crude futures closed Wednesday at $76.79 a barrel, 32% lower than their wartime highs. The labor market is recovering from a weak patch, corporate earnings are strong and the economy is still growing, bolstered by a rush of business investment in artificial intelligence technology.
That could benefit stocks even if interest-rate expectations remain in flux, said Samuel Rines, a macro strategist at asset manager WisdomTree.
"Markets can absorb a lot of blows if earnings are doing well," Rines said. "It's hard to come up with a negative scenario, even with a potential for a rate hike."
Write to Hannah Erin Lang at hannaherin.lang@wsj.com, Sam Goldfarb at sam.goldfarb@wsj.com and David Uberti at david.uberti@wsj.com
(END) Dow Jones Newswires
June 17, 2026 17:21 ET (21:21 GMT)
Copyright (c) 2026 Dow Jones & Company, Inc.
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