US stocks surrendered ground on Wednesday after the Federal Reserve left interest rates unchanged but signalled that borrowing costs could still move higher before the end of the year, unsettling investors who had been betting that the tightening cycle was effectively over.
The sell-off pushed all three major indices lower, with the Nasdaq Composite and S&P 500 each dropping more than 1%, while the Dow Jones Industrial Average shed almost 500 points.
The decline came just one day after the Dow had closed at a record high despite lingering uncertainty surrounding efforts to secure a lasting peace agreement between the United States and Iran.
Markets reacted negatively to updated projections from Federal Open Market Committee members, which revealed that nine of the 18 policymakers who submitted forecasts expect at least one further rate increase before year-end. New Federal Reserve Chairman Kevin Warsh did not submit economic projections for this meeting.
The revised outlook prompted traders to fully price in a quarter-point rate rise by December, marking a notable shift in expectations after many had anticipated the central bank would remain on hold for the foreseeable future.
While policymakers had projected a rate cut in 2026 as recently as March, a stronger labour market and a renewed rise in inflation have complicated that view. Consumer prices have accelerated to their highest level in three years, driven in part by higher energy costs linked to tensions in the Middle East.
Energy markets remain a key focus for investors as questions persist over shipping routes through the Strait of Hormuz. Traders are assessing whether disrupted oil flows can be restored quickly following an interim agreement between Washington and Tehran aimed at ending their recent conflict.
The two countries have agreed on a draft 14-point memorandum and are targeting a formal signing on Friday, although uncertainty remains after President Donald Trump cautioned that the arrangement was not yet finalised. Speaking at the G7 summit on Wednesday, Trump warned that military action could resume if he was dissatisfied with the outcome of negotiations.
Among individual stocks, SpaceX shares fell more than 3%, putting the brakes on a remarkable post-IPO surge. The Elon Musk-led rocket company had climbed rapidly following its market debut, overtaking Amazon in market value within just three trading sessions, though Wednesday’s decline suggested investors may be taking profits after the explosive rally.
