Stocks saw modest strength for much of the trading session on Wednesday but came under pressure following the Federal Reserve’s monetary policy announcement. The Nasdaq reached a record intraday high but pulled back into negative territory along with the other major averages.
The major averages all closed in the red, although the tech-heavy Nasdaq edged down just 8.10 points or 0.1 percent to 7,695.70. The Dow slid 119.53 points or 0.5 percent to 25,201.20 and the S&P 500 fell 11.22 points or 0.4 percent to 2,775.63.
The pullback by stocks after the Fed announced its decision to raise interest rates by 25 basis points to a range of 1.75 percent to 2 percent.
While the rate hike was widely expected, the Fed seemed to surprise investors by forecasting two additional rate hikes this year after previously predicting one rate increase.
“With growth rebounding following the typical first quarter soft patch, and inflation continuing to accelerate, we have been penciling in a total of four hikes for this year,” said ING economist James Smith. “Looking at the latest ‘dot plot,’ it seems the Fed is increasingly heading in this direction too.”
The Fed reiterated that it expects further gradual rate increases but dropped language predicting rates are likely to remain below levels that are expected to prevail in the longer run.
The central bank said data received since its May meeting indicates that the labor market has continued to strengthen and that economic activity has been rising at a solid rate.
Annual overall inflation and core inflation have moved close to 2 percent, the Fed said and noted indicators of longer-term inflation expectations are little changed.
On the U.S. economic front, the Labor Department released a report showing a bigger than expected increase in producer prices in the month of May.