Wall Street ends sharply lower as the Fed holds rates amid war, inflation concerns

Wall Street closed sharply lower on Wednesday after the US Federal Reserve kept interest rates unchanged and projected only one rate cut this year, as officials assessed economic risks stemming from higher oil prices and the war between the United States, Israel, and Iran.

Updated projections from policymakers at the US central bank showed that the benchmark interest rate would decline by just a quarter percentage point by year-end, with no indication of the timing.

Major US stock indices extended their losses following Federal Reserve Chair Jerome Powell’s press conference, where he reiterated the uncertainty the war poses to the economic outlook.

Michael Rosen, Chief Investment Officer at Angeles Investments in Santa Monica, California, said: “The Fed is in wait-and-see mode. With inflation still above target, the economy running above trend, and elevated uncertainty around the path of the Iran war, there is no justification for easing policy.” He added: “The Fed’s biggest challenge, worsened by the war, is balancing its dual mandate of full employment and low, stable inflation. If the war persists and oil prices remain high, the economy will slow. But easing policy would be a mistake because it would fuel inflation.”

Earlier, the US Labor Department reported that producer prices rose 3.4% year-on-year, exceeding economists’ expectations of 2.9%, with the potential for further acceleration due to the Middle East conflict and rising shipping and oil costs.

Brent crude prices rose to nearly $110 per barrel following reports of attacks on Iranian oil facilities in the Pars and Asaluyeh regions.

On the indices front, the S&P 500 fell 1.36%, or about 91 points, to close at 6,624.70, its lowest level in nearly four months. The Nasdaq Composite declined 1.46%, or 327 points, to 22,152.42, while the Dow Jones Industrial Average dropped 1.63%, or about 768 points, to 46,225.15.

All 11 sectors of the S&P 500 ended lower, led by consumer staples, down 2.44%, followed by consumer discretionary, down 2.32%.

At the company level, AMD shares rose 1.6% after reaching an agreement with Samsung Electronics to expand their strategic partnership in supplying memory chips for AI infrastructure, while Nvidia fell 0.8% after receiving Beijing’s approval to sell its second-most advanced AI chips in China.

Micron Technology shares declined about 0.5% despite beating quarterly revenue estimates, supported by strong demand for AI-related memory chips. Meanwhile, Apollo Global Management rose 2.1% after rebounding from last week’s losses, Lululemon gained 3.8% following its earnings release, and Macy’s jumped 4.7% after forecasting a smaller tariff impact in the second half of the year and reporting better-than-expected quarterly profits.

Declining stocks dominated the market, outnumbering advancers on the S&P 500 by a ratio of 5.2 to 1, with 17 new highs and 15 new lows recorded. On the Nasdaq, 42 stocks hit new highs while 218 recorded new lows.

Trading volume on US exchanges was relatively light, with 19.4 billion shares changing hands, compared with an average of 19.8 billion over the past 20 sessions.