Fed Meeting Hawkish, US Stocks Fall, Dow Drops 500 Points
At 2:00 AM Beijing time on June 18, US stocks fell on Wednesday, with the Dow dropping about 500 points. Tech heavyweights led declines, and Treasury yields surged. Several Fed officials hinted at possible rate hikes this year to curb inflation, leaving investors uncertain about the monetary policy path.
The Dow fell 507.12 points, or 0.98%, to 51,492.55, after earlier hitting an intraday record high for the third consecutive session; the Nasdaq dropped 354.68 points, or 1.34%, to 26,021.65; the S&P 500 fell 91.25 points, or 1.21%, to 7,420.
Major tech heavyweights led the decline, with Microsoft, Meta Platforms, Alphabet, and Amazon all closing lower. Hot IPO stock SpaceX also dampened market sentiment, falling for the first time since its listing last Friday. Gains in chip stocks such as Intel and Micron Technology helped limit some of the broader market losses.
This was the first Fed meeting chaired by new Chairman Kevin Warsh. After the two-day meeting, the Fed held the federal funds rate unchanged at a target range of 3.5% to 3.75%.
According to the summary of economic projections, several Fed officials expect rate hikes in 2026. The median year-end estimate for the federal funds rate is now 3.8%, up from 3.4% in the previous projection in March, suggesting the committee sees at least one rate hike needed in 2026.
Warsh revealed that he did not submit his own rate projection, complicating the outlook. After the decision, US Treasury yields jumped, with the 2-year yield rising 16 basis points to 4.208%.
"The market is reacting primarily to the dot plot... its stance is much more hawkish," said Claudia Sahm, chief economist at New Century Advisors. "The inflation situation has changed a lot."
Traders also focused on Warsh's repeated emphasis on the Fed's commitment to 'price stability' during the news conference, suggesting he may not pursue the rate cuts many expected from a Trump nominee.
DoubleLine Capital CEO Jeffrey Gundlach said: "He's absolutely telling you he intends to achieve price stability. That means... we won't have the loose monetary policy we might have expected Chair Warsh to pursue when everyone was betting on rate cuts in the first quarter of this year. He didn't sound like that at all today."
