U.S. stocks fall, Dow drops nearly 500 points as hawkish Fed pushes yields higher
At the start of June 18 Beijing time, U.S. stocks fell on Wednesday and the Dow dropped about 500 points. Tech heavyweights led the decline and Treasury yields surged. Several Federal Reserve officials signaled that rates could be raised this year to curb inflation, leaving investors uncertain about the future policy path.
The Dow fell 507.12 points, or 0.98%, to 51,492.55, after hitting an intraday record high earlier in the session for a third straight record day. The Nasdaq fell 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 names led the declines, with Microsoft, Meta Platforms, Alphabet and Amazon all closing lower. Hot IPO name SpaceX also weighed on sentiment, falling for the first time since listing last Friday. Gains in chip names such as Intel and Micron helped limit some of the broader market losses.
This was the first Fed meeting chaired by new Fed Chair Kevin Warsh. At the end of the two-day meeting, the Fed kept the target range unchanged at 3.5% to 3.75%.
According to the Summary of Economic Projections, several Fed officials expect to raise rates in 2026. The year-end median forecast for the federal funds rate is now 3.8%, up from the 3.4% forecast in March, suggesting the committee believes at least one hike will be needed in 2026.
Warsh revealed that he did not submit a rate forecast, adding to the uncertainty.
After the decision, U.S. Treasury yields jumped, with the 2-year yield rising 16 basis points to 4.208%.
'Right now the market reaction is mostly about the dot plot... its stance is much more hawkish,' said Claudia Sahm, chief economist at New Century Advisors. 'The inflation picture has changed a lot.'
Traders also focused on Warsh repeatedly emphasizing the Fed's commitment to 'price stability' during his press conference, suggesting he may not pursue rate cuts as many had expected from a nominee of U.S. President Trump.
Jeffrey Gundlach, CEO of DoubleLine Capital, said: 'He is absolutely telling you he plans to achieve price stability. That means... we are not going to get the kind of easy policy people expected when they were betting on rate cuts in the first quarter this year. He didn't sound anything like that today.'
