Fed Hike Drives 1.2% Wall Street Drop
The US Federal Reserve raised rates by 25 basis points, triggering a sharp reversal in US equities and sending Australian futures lower.
The Dow Jones Industrial Average fell 631.21 points to close at 51,461.90. This 1.2% decline erased early session gains immediately after the Federal Reserve announced its decision. The move marks the first interest rate increase since July 2023.
The Federal Open Market Committee voted unanimously to lift the federal funds rate to a range of 3.75% to 4.00%. Fed Chair Kevin Warsh described the action as removing a dose of accommodation. He warned that inflation remains too high across many goods and services categories.
Hawkish signals reshape market outlook
The median forecast for the federal funds rate at the end of 2026 rose to 4.125%. The previous projection of a rate cut in 2027 was removed entirely. Markets now price a 50% probability of another increase in October.
Economists expect at least two additional 25-basis-point hikes in coming months. This would lift the target range to 4.25% to 4.50%. US Treasury yields reversed earlier declines as a result. The two-year yield rose 7.3 basis points to 4.74%.
The benchmark 10-year yield increased 2.1 basis points to 5.02%. Strong retail sales data reinforced expectations that the economy can withstand tightening. August retail sales rose 1.2%, beating the 0.8% forecast. Import prices advanced 0.7% during the month.
ASX futures slide on dollar strength
ASX 200 futures dropped 68 points, or 0.8%, in early trade. The Australian dollar fell below US71 cents to trade around US70.88 cents. This weakness followed the rate decision strengthening the US dollar.
The S&P/ASX 200 had gained 0.3% on Wednesday before the Fed announcement. Energy and mining stocks drove that recovery. Woodside Energy Group, Santos, and Ampol advanced on elevated crude prices. Major banks declined, with Commonwealth Bank and ANZ Group lower.
Sector leaders and laggards diverge
J.B. Hunt Transport Services led the S&P 500 lower with a 13.30% drop. Its CFO warned that higher costs could drive a 5% to 10% sequential decline in earnings. ON Semiconductor dropped 9.02% and Diamondback Energy lost 8.03%.
Lumentum Holdings surged 9.59% and Coherent jumped 6.92% in the same session. Artificial-intelligence stocks provided support for the broader market. Nvidia rose 0.8% and Advanced Micro Devices gained 1.6%. Microsoft slipped 1.4% despite the sector-wide strength.
