Fed raises rates for first time in over 3 years, sending Wall Street lower

US stocks fell across the board Wednesday after the Federal Reserve raised its benchmark interest rate and Fed Chair Kevin Warsh struck a hawkish tone, signaling the door remains open to further tightening. The yield on the 10-year US Treasury note climbed back above 5% as investors digested the Fed's first rate hike in three years and two months.

The Dow Jones Industrial Average closed down 631.21 points, or 1.21 percent, at 51,461.90 on the New York Stock Exchange on Wednesday (local time).

The S&P 500 fell 33.92 points, or 0.45 percent, to 7,551.81, while the technology-heavy NASDAQ Composite edged down 3.15 points, or 0.01 percent, to 25,978.43.

The Fed's Federal Open Market Committee voted to raise the benchmark interest rate by 0.25 percentage points to a target range of 3.75 to 4.00 percent annually — the first rate increase since July 2023, marking a gap of three years and two months.

All 12 FOMC members voted in favor of the hike. The Fed also left open the possibility of additional rate increases before year-end.

At a post-meeting press conference, Warsh said "inflation has been too high for too long," reaffirming the central bank's commitment to restoring price stability.

The US Treasury market, which had been in a wait-and-see mode ahead of the rate decision, was rattled anew. The 10-year Treasury yield crossed back above 5 percent, rising 2.7 basis points from the previous session to 5.023 percent as of 4:30 p.m. (local time).

The dollar also strengthened. The US Dollar Index (DXY), which measures the greenback against six major currencies, rose 0.6 percent to 100.21 — its highest level since July 31.

Seo Sang-young, a managing director at Mirae Asset Securities, said markets interpreted Warsh's repeated focus on inflation as a hawkish signal. "As the dollar strengthened and yields turned higher, the indexes reversed into negative territory," he said.

Large bank stocks led the declines. Goldman Sachs and Wells Fargo each fell more than 3 percent as expectations spread that the rate hike would not be a one-time move. Investors worried that further increases would slow loan growth.

Jeff Schulze, chief investment strategist at the Franklin Templeton Institute, said Warsh's hawkish tone at the press conference drove the market lower. "The hawkish tone he showed at the Jackson Hole speech carried straight through," he said.

Schulze added that the rate hike showed the Fed "is putting action behind its commitment to bring inflation back to target."

Intel bucked the trend, surging more than 4 percent after Reuters reported that SK hynix is in negotiations with Intel to produce memory chips in the United States for the first time.

The Philadelphia Semiconductor Index also rose 0.63 percent.