Fed projections show a higher 2026 federal funds rate at 3.8%, spooking markets and pushing the Dow down 480 points intraday.
The Dow Jones Industrial Average reversed early record highs Wednesday after the Federal Reserve adopted a hawkish tone in its latest policy decision. The index fell nearly 480 points from its intraday peak to around 51,800, erasing gains after the Fed’s updated economic projections signaled tighter policy ahead.
The Federal Open Market Committee held rates steady at 3.50% to 3.75% but removed its easing bias, replacing it with a commitment to price stability. The median 2026 federal funds rate projection rose to 3.8% from 3.4% in March, while PCE inflation forecasts for the same year surged to 3.6% from 2.7%. The shift caught markets off guard, with the 2-year Treasury yield climbing 11 basis points to 4.16%.
Equities struggled to absorb the higher-for-longer rate outlook, as the Fed’s projections suggested a potential hike rather than cuts in the near term. The Dow’s reversal underscored investor sensitivity to shifts in monetary policy expectations.