Stock market today: Dow plunges 800 points as markets brace for more rate hikes

It looked like the market was taking Wednesday’s rate hike well, until it suddenly wasn’t.

Following the first interest rate increase from the Federal Reserve in three years, stocks were mostly higher and key bond yields inched lower as traders were encouraged by the central bank’s willingness to do what it takes to get prices under control.

However, things changed as Kevin Warsh delivered his remarks, which suggested that officials still see inflation as a major risk that will take more hikes to fully tame.

Stocks dropped sharply and bond yields rose as the Fed chair wrapped up his press conference, with losses accelerating into the end of the trading session.

Here’s where major indexes stood at the 4 p.m. ET closing bell:

• S&P 500: 7,552.34, down 0.44%
• Dow Jones Industrial Average: 51,462.55, down 1.19 (-630.56 points)
• Nasdaq 100: 28,945.06, up 0.02%

The 10-year Treasury was back above 5% at the end of the day after dipping below the threshold right after the rate decision. The Fed-sensitive 2-year bond yield spiked 6 basis points to 4.72%.

The Fed’s updated Summary of Economic Projections suggests that central bankers see one more rate hike coming before the end of the year.

Some investors are pricing in even more rate hikes than reflected in the central bank’s own projections, Brian Therien, a senior investment strategy analyst at Edward Jones, said. The odds that the Fed will raise rates by 50 basis points by the end of the year also rose to 38%, up from a 10% probability priced in last week, according to the CME FedWatch tool.

“The message from the dot plot is clear: rates may move higher and remain elevated for longer than investors previously expected,” Brian Rehling, the co-head of global fixed income and digital asset strategy at Wells Fargo Investment Institute, wrote in a note on Wednesday.

Warsh, who has been opposed to issuing forward guidance for monetary policy, said central bankers had come to the conclusion that rates needed to be more restrictive in order for the Fed to fulfill its 2% inflation commitment. He added that the decision was not influenced by recent volatility in the bond market.

“Warsh’s press conference closely echoed the hawkish tone of his Jackson Hole remarks,” Jeff Schulze, the head investment strategist at Franklin Templeton Institute, wrote in a note. “The hawkish tone of the press conference drove fed funds futures and long bond yields higher and US equities lower, with the resulting rise in rates weighing on equity valuations.”