US stock markets tumbled on Wednesday after the Federal Reserve left interest rates unchanged and signaled a possible rate hike before the end of the year, in the first meeting under new chair Kevin Warsh. The Dow closed 500 points lower, while the S&P 500 and Nasdaq each fell more than 1.2% soon after the announcement.
The Fed held rates at a range of 3.5% to 3.75%, a decision unanimously supported by its voting committee. In a statement, the Federal Open Market Committee said: “Economic activity is expanding at a solid pace despite elevated uncertainty that owes, in part, to the conflict in the Middle East.” It acknowledged that “inflation remains elevated relative to the committee’s 2% goal,” and concluded: “The Committee will deliver price stability.”
“US stocks fell sharply after the Fed held rates and signaled a possible hike, in Kevin Warsh's first meeting as chair.”
Inflation is running at an above-target 3.8%, pushed up by the US-Israel war in Iran, which has also created uncertainty around President Donald Trump’s deal to end the conflict. Alongside the decision, the Fed released its “dot-plot” projections showing a sharp pivot: nine of the 18 central bankers who participated in the rate-setting process predicted at least one rate increase this year, while just one expected a cut and eight saw no change. That marks a U-turn from March, when 12 of 19 officials projected a cut by year’s end. Warsh, who opposes the dot-plot, did not offer his own projection but encouraged colleagues to proceed with it.
Warsh’s first meeting also brought a notable shift in the Fed’s communication style. The monthly policy statement was cut to 132 words from nearly 350 in April, reflecting his long-held criticism of past verbosity. He announced plans to create five taskforces to overhaul the central bank, including one to reassess how the Fed communicates with the public through news conferences, dot-plot projections, and meeting transcripts. “I don’t want to prejudge the outcomes but I’m open-minded about what they could be,” Warsh said.
President Trump, who had pushed Warsh’s predecessor Jerome Powell for rate cuts, reacted to the decision with indifference. “It’s alright… whatever,” he said. When asked about the possibility of rate hikes, he replied: “It could happen… it’s hard to believe … it just keeps the country down, it is so unusual.” But he praised Warsh, whom he nominated: “We have a very good guy over there now, so I’m guided by what he wanted.”
Samuel Tombs, chief US economist at Pantheon Macroeconomics, said the “big news” from Wednesday was the dot-plot pointing to potential rate hikes before year’s end. The market sell-off underscored investor unease at the prospect of tighter policy, as the Fed navigates persistent inflation and geopolitical uncertainty.