Stocks Plunge Late as Powell Dashes Rate-Cut Hopes, Oil Surges

U.S. stocks fell sharply Wednesday, accelerating losses into the close after Federal Reserve Chair Jerome Powell struck a cautious tone on inflation and policy flexibility, while rising oil prices and tighter financial conditions added to investor unease. The Dow Jones Industrial Average dropped 768.48 points to 46,224.8, while the S&P 500 fell 91.35 points to 6,624.74 and the Nasdaq Composite declined 327.11 points to 22,152.4.

Markets initially held steady following the Fed’s policy decision and updated projections, which largely matched expectations. However, equities turned lower during Powell’s press conference and continued to slide into the close as investors reassessed the outlook for interest rates.

Powell emphasized repeatedly that policy is “not on a preset course” and that any future rate cuts remain conditional on further progress in inflation. He underscored that while the Fed still expects improvement, it is not guaranteed—particularly given recent inflation surprises and new pressures from energy and tariffs. The message reinforced a “higher-for-longer” stance without explicitly signaling further tightening.

That ambiguity weighed on equities. Investors had been looking for clearer confirmation that rate cuts remain on track, but Powell instead stressed uncertainty, noting the Fed has learned inflation can take longer to fade than expected. He also acknowledged that recent shocks—including rising oil prices—could complicate the disinflation process.

Energy markets were a key contributor to the late-session weakness. U.S. crude settled near $97.68 a barrel, extending gains as geopolitical tensions in the Middle East raised concerns about supply disruptions. Powell noted that sustained increases in gasoline prices could weigh on consumer spending while also pushing inflation higher, leaving the Fed in a difficult balancing position.

Financial conditions tightened alongside the Fed messaging. Treasury yields moved higher during the session, with the 10-year yield rising roughly 6 basis points, while the U.S. dollar strengthened toward the 100 level. Meanwhile, the CBOE Volatility Index jumped to 24.25, reflecting increased hedging demand as equities sold off.

The Fed’s updated Summary of Economic Projections reinforced the cautious tone. Policymakers raised inflation forecasts for 2026 and widened the range of outcomes, signaling less confidence in the disinflation path. At the same time, the dot plot showed a subtle shift higher in rate expectations, even as median projections remained unchanged—an indication that officials are becoming less comfortable with aggressive easing assumptions.

The result was a broad-based selloff into the close, driven less by a single comment and more by the cumulative effect of a Fed unwilling to signal imminent easing, rising oil prices, and tightening financial conditions.

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