Fed Holds at 3.5%-3.75%, Drops Easing Bias — SPX Sells Off

The Federal Reserve left rates unchanged at 3.5%-3.75% Wednesday, a decision that matched consensus. The sell-off that followed was about everything else.

Chair Warsh dropped the easing bias that markets had priced into year-end rate-path expectations. The statement removed language about "gradual adjustments" and replaced it with a data-dependent posture that traders read as a higher bar for cuts. The S&P 500 fell 1.8% on the session, with the move accelerating after Warsh's press conference.

The dot plot shifted higher. The median projection for end-2026 now sits at 3.25%, up from 3.0% in the March summary. Two FOMC members dissented in favor of a hold with a tighter bias, a detail that caught rates desks off guard. Short-dated Treasuries sold off first – the 2-year yield rose 12 basis points to 3.92% – before the move spread to equities.

Growth stocks took the worst of it. The Nasdaq 100 dropped 2.4%, with rate-sensitive sectors like real estate and utilities down more than 3%. Financials held up better, up 0.3%, as higher-for-longer rates support net interest margins. The dollar index rose 0.6% against a basket of major currencies, adding pressure on commodities and emerging-market equities.

Gold fell 1.2% to $2,340 an ounce, breaking below its 50-day moving average. Crude oil slipped 0.8% as the stronger dollar and a lower growth outlook weighed on demand expectations. The macro transmission was clean: higher real rates, a firmer dollar, and a repricing of rate-sensitive assets.

The next scheduled data point is the May CPI report on June 12. Until then, the market will calibrate around the new dot plot and Warsh's commentary. The old easing bias is gone. The new posture is wait-and-see with a hawkish lean.