US Markets Slide as Fed Signals Hawkish Shift and Potential Rate Hikes

Wall Street faced a significant sell-off on Wednesday as the S&P 500 and Nasdaq tumbled by over 1% following the Federal Reserve's latest policy decision. Despite keeping interest rates unchanged, the central bank's cautious stance on inflation has shifted trader expectations toward future rate hikes.

The Fed Holds Steady but Signals a Hawkish Turn

The Federal Reserve opted to maintain interest rates within the 3.50%-3.75% range, a move widely anticipated by the markets. However, the real impact came from the quarterly projections and the tone set by new Fed Chair Kevin Warsh. In a departure from previous leadership, Warsh did not provide an interest-rate-path projection, instead emphasizing a resolute commitment to price stability and taming inflation.

Crucially, the Fed’s policy statement removed previous language that had suggested the possibility of rate cuts later this year. New projections revealed that nine central bank officials anticipate at least one rate hike by the end of 2026. This shift has fundamentally altered market sentiment, moving the focus from "when will rates fall" to "how high will they go."

Market Reactions and Shifting Trader Bets

The hawkish tilt from the Fed triggered an immediate decline across major indices. The S&P 500 dropped 89.59 points, or 1.19%, to close at 7,421.76. The tech-heavy Nasdaq Composite saw a sharper decline, losing 349.14 points (1.32%) to end at 26,027.21, while the Dow Jones Industrial Average fell 499.18 points, or 0.96%, to 51,494.99.

According to CME Group’s FedWatch tool, trader sentiment shifted dramatically following the announcement. The probability of rates holding steady through the end of the year plummeted from 40% on Tuesday to just 15.7%. Currently, expectations for a 25-basis-point hike by December stand at nearly 38%, while the chance of a more aggressive 50-basis-point hike is approximately 33%.

Geopolitical Volatility and Economic Data

Faktor luaran juga memainkan peranan dalam trajektori penurunan pasaran. Walaupun perjanjian damai awal AS-Iran sebelum ini telah melonjakkan saham dengan menurunkan harga minyak, komen terbaharu Presiden Donald Trump—yang menyatakan bahawa perjanjian tersebut belum muktamad dan peperangan boleh bersambung semula—telah menyebabkan harga minyak meningkat semula sedikit demi sedikit. Ketegangan geopolitik yang meningkat ini menambah tekanan inflasi lanjut, sekali gus merumitkan mandat Fed.

Dari sudut domestik, data ekonomi menunjukkan daya tahan dalam perbelanjaan pengguna; jualan runcit AS meningkat lebih daripada yang dijangkakan pada bulan Mei, didorong oleh pembelian kenderaan meskipun harga petrol meningkat. Dalam berita korporat, saham CME Group merosot susulan pengumuman bahawa CEO Terry Duffy akan beralih kepada Pengerusi Eksekutif pada 1 Mac, manakala saham Allbirds melonjak selepas penjenamaan semula kepada "Smartbird" dan pelantikan bekas eksekutif Amazon sebagai CEO.

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