Federal Reserve rate hike fails to calm markets, volatility expected

The Federal Reserve raised its benchmark federal funds rate by 25 basis points on September 16, bringing the target range to 3.75%-4.0%. Instead of settling nerves, the move triggered a late-session equity sell-off and pushed Treasury yields higher. The Dow Jones Industrial Average dropped 631 points, a 1.2% decline, while the S&P 500 fell 0.45%. The Nasdaq held essentially flat. 16 out of 18 FOMC participants indicated they expect at least one more quarter-point increase before the year is out. Why the Fed pulled the trigger This was the first rate hike since July 2023, and the decision wasn’t close. The FOMC voted 12-0 in favor, a unanimous consensus reflecting concern about persistent inflation running above the 2% target. Fed Chairman Kevin Warsh didn’t mince words during his post-meeting press conference. “Inflation is too high,” Warsh said, emphasizing the central bank’s commitment to returning price growth to its 2% goal. Rising energy prices are a major culprit behind the stubborn inflation readings. Updated economic projections from the meeting showed the overwhelming majority of committee members see more tightening ahead, with 16 of 18 officials expecting at least on...