Fed Hikes Rates for First Time Since 2023, Pencils In Another by Year End: Market Reactions

S&P 500 briefly welcomed the Fed’s restrained outlook before slipping into the red.

🏦 One hike delivered, another on the calendar

• The Federal Reserve unanimously raised its target range USINTR by 25 basis points to 3.75%–4.00%, delivering its first increase since July 2023.
• The move responded to persistent inflation, stronger economic data and an oil shock that has made the journey back to 2% considerably less straightforward.
• The updated dot plot pointed to one additional quarter-point increase before year-end. Sixteen of 18 officials projected at least one more bump, placing the median rate near 4.1%.
• Policymakers expect rates to finish 2027 around the same level, meaning cuts have disappeared from the central forecast. But so are hikes, for what it’s worth.

📉 Wall Street’s relief rally fades

• The S&P 500 initially advanced after the announcement but reversed during Chair Kevin Warsh’s press conference, slipping just below the flatline.
• The reaction suggests investors liked the limited number of projected hikes but were less comfortable with rates remaining above 4% throughout 2027.
• Higher rates affect stocks in two ways: they raise companies’ borrowing costs and reduce the present value of future earnings.
• That second effect is particularly important for expensive technology companies, whose valuations rely heavily on profits expected several years from now.

💵 Dollar rallies while gold and Bitcoin flatten

• The dollar was the clearest winner, advancing across the board as the unanimous vote strengthened confidence in the dollar’s ability to yield handsome returns.
• The greenback gained against the euro, pound and yen as traders absorbed the prospect of another hike and no easing through 2027.
• Gold surrendered its earlier advance after trading above $4,350, returning toward the flatline but holding moderately steady. Lower long-term yields offered support, while the stronger dollar and higher projected policy path worked in the opposite direction.
• Bitcoin also erased its daily gains and settled near $75,500. The orange coin held relatively steady considering the tighter liquidity outlook, although higher cash and bond yields reduce the appeal of non-yielding assets.