US STOCKS-Wall Street closes lower on Fed rate hike bets

The S&P 500 and Nasdaq closed down by over 1% as traders anticipated a potential rate hike following the Federal Reserve's meeting, despite rates being left unchanged.

The S&P 500 and Nasdaq closed down by more than 1% on Wednesday, as traders bet that the Federal Reserve's next move would be a rate hike after new Fed Chair Kevin Warsh highlighted ‌the need to tame inflation and other policy makers projected rising interest rates later this year.

The Fed left rates unchanged as was widely expected but new quarterly projections showed nine central bank officials expect at least one rate hike by the end of 2026. The policy statement removed previous language that ‌had flagged the likelihood for rate cuts this year. Breaking with past practices by Fed chiefs, Warsh did not submit an interest-rate-path projection as part ‌of quarterly forecasts. He told reporters the central bank would deliver on price stability.

Policymakers had been widely expected to hold interest rates unchanged at the 3.50%-3.75% range as they wrestled with inflation pressures from the oil-price spike during the Iran war. After the meeting, trader bets that rates would hold steady by year-end had dwindled to 15.7% from 40% on Tuesday, ⁠according to CME ​Group's FedWatch tool. Expectations for a 25-basis-point ⁠rate hike by December were at nearly 38% while the probability for a 50-basis-point hike was nearly 33%.

"There was clearly a hawkish tilt to the Fed's statement and Chair Warsh's ⁠comments at the press conference. The main takeaway, in my opinion, is the Fed's focus on the commitment to deliver price stability and the commentary about inflation," said ​Michael James, managing director and equity sales trader at Rosenblatt Securities. According to preliminary data, the S&P 500 lost 89.59 points, or 1.19%, to ⁠end at 7,421.76 points, while the Nasdaq Composite lost 349.14 points, or 1.32%, to 26,027.21. The Dow Jones Industrial Average fell 499.18 points, or 0.96%, to 51,494.99.

Economic data showed U.S. retail ⁠sales ​increased more than expected in May, with households purchasing more cars and other vehicles even as they paid higher prices for gasoline. Stocks had rallied sharply from Thursday through Monday as oil prices fell after President Donald Trump announced a preliminary U.S.-Iran peace deal. Oil prices edged back up ⁠on Wednesday after Trump said the agreement with Iran was not final and that the war could resume if he is unsatisfied.

In individual stocks, ⁠CME Group slipped after the exchange operator ⁠said its CEO, Terry Duffy, will step down on March 1, and transition to the role of executive chairman. Shares of Allbirds soared after the footwear maker-turned-AI company changed its name to Smartbird and appointed former Amazon executive ‌Nadia Carlsten as CEO.