Wall Street slides as Fed signals hawkish turn on inflation

The S&P 500 shed 1.19% to finish at 7,421.76, while the Nasdaq Composite dropped 1.32% to 26,027.21. The Dow Jones Industrial Average fell 0.96% to 51,494.99. While the central bank held rates steady in the 3.50%-3.75% range, the removal of language hinting at potential cuts—combined with quarterly projections showing nine officials anticipating at least one hike by year-end—dampened investor sentiment. According to CME Group’s FedWatch tool, the probability of rates holding steady by December plummeted to 15.7%, down from 40% just a day prior.

Michael James, managing director at Rosenblatt Securities, noted a distinct hawkish tilt in the official statement and Warsh’s subsequent remarks. This stance remains heavily influenced by persistent inflationary pressures, exacerbated by a spike in oil prices linked to the conflict with Iran. The geopolitical backdrop remains volatile; despite an earlier rally sparked by President Donald Trump’s talk of a preliminary peace deal, stocks faltered after the President warned that the agreement was not final and the war could resume.

Corporate movements provided contrast to the broader market slump. CME Group shares slipped as the exchange announced CEO Terry Duffy will transition to executive chairman in March. Conversely, Allbirds surged after rebranding as Smartbird and naming former Amazon executive Nadia Carlsten as its new CEO. Meanwhile, U.S. retail sales data for May outperformed expectations, though the strength in consumer spending on vehicles was overshadowed by the looming reality of higher borrowing costs.