Fed hikes rates, now sees 2% inflation in 2029

(AWP Alliance News) - Stock prices fell in New York on Wednesday as the Federal Reserve raised its benchmark interest rate for the first time since 2023.

The Dow Jones Industrial Average closed down 631.21 points, 1.2%, at 51,461.90. The S&P 500 fell 33.92 points, 0.5%, to 7,551.81. The Nasdaq Composite ended down 3.15 points at 25,978.42.

Inflation has been "too high and has been for too long," Federal Reserve Chair Kevin Warsh said after the central bank voted to raise the target range for the federal funds rate by 25 basis points to 3.75%-4.00%.

The Fed has left interest rates on hold throughout this year, with the last cut in December 2025. It last increased rates back in July 2023. Since then, the Federal Open Market Committee has lowered rates six times for a total of 175 basis points.

"Inflation is the problem and has been for the last 5 and a half years," Warsh told reporters after the vote, adding that while the labour side of the Fed's dual remit is in "good shape", inflation readings "do not tell me conditions have improved".

He pointed out too many categories are posting increases of above 3%.

Warsh said the decision to raise rates comes at a time when the US economy is strengthening. He said he and FOMC members are "hard-pressed to describe conditions as restrictive," adding that the Fed has "removed a dose of accommodation."

The FOMC's summary of economic projections showed Fed officials expect one further rate increase this year, but no more in 2027. Cuts are forecast to resume in 2028.

Core PCE inflation, the Fed's preferred inflation measure, is forecast at 3.4% in 2026, before decelerating to 2.5% in 2027 and 2.2% in 2028. It is not seen reaching the 2% target until 2029. In June, officials had projected core PCE inflation hitting target in 2028.

"Kevin Warsh was stuck between a rock and a hard place. The choice was either to lead with the hike in rates and risk the potential wrath of the President or risk a fresh strop in the bond markets. The decision was a test of the Fed's independence, and this move has strengthened the autonomy of the institution," said Wealth Club Chief Investment Strategist Susannah Streeter.

"The decision to hold rates at the previous meeting saw Treasury yields creep up as investors began to doubt the ability of the Fed to bring inflation under control, with worries that a weak stance would only prompt the need for steeper hikes in the future," Streeter added, calling the decision "a vote of confidence in Warsh's stewardship."

"Nevertheless, with the war in Iran still entrenched and the AI infrastructure build-out adding to inflationary pressure, the inflation battle is far from over and markets are still bracing for further rate hikes," the strategist continued.

The yield on the 10-year US Treasury was at 5.01% late Wednesday, up slightly from 5.00% on Tuesday. The 30-year yield eased to 5.35% from 5.37%.

A barrel of Brent fetched USD105.58 late Wednesday, down from USD108.53 on Tuesday. West Texas Intermediate fell to USD102.12 from USD105.66.

Against the dollar, the euro was at USD1.1465, down from USD1.1542. Sterling fell to USD1.3377 from USD1.3477. Against the yen, the dollar was at JPY156.15, up from JPY155.12.

Gold fell to USD4,260.25 an ounce from USD4,297.50.

The US Senate on Tuesday voted not to advance the Digital Asset Market Clarity Act, delivering a blow to the push for clearer regulatory framework for cryptocurrencies and other digital assets.

The bipartisan bill was supported by US President Donald Trump. It passed in the US House of Representatives in July 2025.

However, "further negotiations could still take place" and the vote does not mean the legislation is "permanently dead," XS.com senior market analyst Antonio Di Giacomo noted, adding that regulators "could continue developing rules for the digital asset market using their existing regulatory powers," but that this "could provide less clarity than legislation passed directly by Congress."

Late Wednesday, bitcoin was up 0.5% on the day at USD75,966.92.

The House is set to vote Wednesday on whether data centres should take on more of their own electricity costs, a key question ahead of the US midterm elections.

The bipartisan Ratepayer Protection Act would require state utility regulators to consider special rules ensuring data centers meet the expense of new power generation, transmission lines and other grid upgrades needed to serve them.

Shares in electric utility company Xcel ended up 0.3%. Peer NextEra fell 0.9%.

Several Amazon data centers in the UAE and Bahrain hit by drone strikes in March cannot be reactivated, the company's cloud arm said on Tuesday.

"After a thorough assessment, we have determined that we are unable to restore access to the resources and data hosted exclusively in this Region," it said in a status update.

Amazon Web Servives said it was still working to restore its "resources" at two sites in the UAE, but that it in Bahrain, it had "exhausted every option for restoring data and resources that had not been migrated before the Region became unavailable."

Amazon ended down 1.0%.

Meta CEO Mark Zuckerberg on Wednesday joined US President Trump and Nvidia Chief Jensen Huang in pushing back against calls from the AI industry to slow development.

"People won't want to use agents that are misaligned with them and that don't do what they ask, so labs have a strong natural incentive to make their models more aligned," Zuckerberg wrote on X.

On Tuesday, ChatGPT-maker OpenAI said it was working with Anthropic and Alphabet's Google on a potential self-regulatory body. The announcement came after Anthropic CEO Dario Amodei called for a slowdown in the pace of AI development, a sentiment that OpenAI CEO Sam Altman, Elon Musk and Alphabet Chief Scientist Demis Hassabis all supported.

Meta closed up 0.5%, Alphabet fell 0.6% and Nvidia gained 0.8%.

In Europe, the FTSE 100 closed up 0.3% in London. The CAC 40 rose 0.6% in Paris. The DAX 40 gained 0.5% in Frankfurt.

In China, the Shanghai Composite closed up 0.7%. The Hang Seng rose 0.2% in Hong Kong. The Nikkei 225 ended up 0.7% in Tokyo. The S&P/ASX 200 ended up 0.3% in Sydney.

Thursday's global economic calendar has US initial jobless claims and EIA natural gas stocks. The Bank of Japan monetary policy meeting begins.

By Aidan Lane, Alliance News reporter

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