Dow falls 507 points after Fed signals hawkish shift

The Dow Jones Industrial Average fell 507 points, or 0.98%, to 51,492.55 on Wednesday after the Federal Reserve left its policy rate unchanged but adopted a firmer outlook for future policy.

At its first meeting under Chair Kevin Warsh, the Federal Open Market Committee voted unanimously to keep the federal funds rate in a target range of 3.5% to 3.75%, marking the fourth straight meeting with no change.

Updated quarterly projections showed nine Fed officials expecting at least one rate increase by the end of 2026. The median forecast for the year-end federal funds rate rose to 3.8% from 3.4% in March. The policy statement removed language that had indicated rate cuts were likely this year. Warsh did not provide an individual interest-rate projection with the quarterly outlook and emphasized the Fed’s focus on price stability during his press conference.

Stocks across major indexes declined. The S&P 500 fell 1.21% to 7,420.10 and the Nasdaq Composite lost 1.34% to 26,021.66. Two-year Treasury yields climbed about 15 basis points to 4.205% and the U.S. dollar strengthened.

Market tools showed a sharp shift in expectations. The probability that rates will remain unchanged by December dropped to about 15.7% from 40% the previous day. The chance of a quarter-point hike by year-end rose to nearly 38%, while the probability of a half-point increase approached 33%.

Growth-oriented technology stocks led the decliners. Microsoft, Meta Platforms, Alphabet and Amazon all traded lower. Newly public SpaceX fell for the first time since its initial public offering on Friday. Semiconductor shares provided some support, with Intel and Micron Technology posting gains. Shares of Allbirds, now rebranded as Smartbird, rose after the company named former Amazon executive Nadia Carlsten chief executive.

The market had rallied from last Thursday through Monday after falling oil prices and optimism around a preliminary U.S.-Iran agreement. That advance lost momentum after President Donald Trump warned the agreement was not finalized, ahead of the Fed’s more hawkish projections.

The Fed’s decision and updated forecasts will be monitored in the coming weeks as investors adjust expectations for monetary policy and financial conditions.