US stocks sink on worries about a possible hike to interest rates this
year by the Federal Reserve
[June 18, 2026] By
STAN CHOE
NEW YORK (AP) — U.S. stocks slumped Wednesday on speculation the Federal
Reserve may hike interest rates this year to keep a lid on inflation.
Higher rates can tap the brakes on accelerating prices at cash
registers, but they also slow the economy and hurt prices for
investments.
The S&P 500 dropped 1.2% and erased an earlier, modest gain after the
Fed released projections showing that nine of 18 policymakers foresee at
least one increase to its main interest rate this year. The Dow Jones
Industrial Average went from a gain of 280 points in the morning to a
drop of 507 points, or 1%, while the Nasdaq composite sank 1.3%.
One important policymaker at the Fed did not give a forecast for where
the federal funds rate may end 2026: Chairman Kevin Warsh. In his first
press conference as head of the U.S. central bank, Warsh said he’s also
considering a revamp of how the Fed communicates with financial markets
and U.S. households and businesses.
One of his first moves was to end the inclusion of hints in Fed
statements about where interest rates may be heading in the future,
something called “forward guidance.”
Warsh said he wants Wall Street to react to incoming reports about
inflation, the job market and other economic data based on how they
should affect prices for stocks, bonds and other investments rather than
how traders expect the Federal Reserve to react to them.
As part of that, Warsh said the Fed could make changes to its usual
release of projections every three months showing where Fed officials
foresee interest rates, the economy and inflation heading.
For now, Wall Street reacted uneasily to Fed officials’ latest set of
projections, though Warsh cautioned he “didn’t hear tons of conviction”
behind them. Stocks zigzagged up and down several times following the
release. The Fed also announced its decision to keep the federal funds
rate steady at this meeting, as it has all year so far.
In the bond market, Treasury yields climbed. The yield on the 10-year
Treasury, which influences rates for mortgages and other loans going to
U.S. households and businesses, rose to 4.49% from 4.43% late Tuesday.
The two-year Treasury yield, which more closely tracks expectations for
Fed action, jumped to 4.21% from 4.05%.
Traders upped their bets for at least one increase to the federal funds
rate this year and now see an 84% probability of it, up from 59.5% a day
earlier, according to data from CME Group.
High yields in bond markets worldwide caused by worries about inflation
have already been threatening to slow economies and undercut prices for
all kinds of investments.
In the stock market, SpaceX erased an early gain and fell 4.9% for its
first loss since its ballyhooed debut on the U.S. stock market last
week.
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Federal Reserve Chair Kevin Warsh's press conference appears on
screens on the floor of the New York Stock Exchange, Wednesday, June
17, 2026. (AP Photo/Richard Drew)
 Drops of 3.8% for Microsoft, 3.5%
for Amazon and 1.3% for Nvidia were three of the heaviest weights on
the S&P 500.
They helped overshadow a jump of 14.8% for La-Z-Boy, which reported
stronger profit and revenue for the latest quarter than analysts
expected. It benefited from revenue made at newly opened stores,
though Chief Financial Officer Taylor Luebke said the company
continues to have “a measured view” of the broad sales environment.
All told, the S&P 500 fell 91.25 points to 7,420.10. The Dow Jones
Industrial Average dropped 507.12 to 51,492.55, and the Nasdaq
composite sank 354.69 to 26,021.66.
A report released Wednesday said retailers across the country saw
their revenue grow at a faster pace in May than economists expected,
offering hope that solid spending by consumers can support the
economy. But high inflation has also made U.S. shoppers feel more
discouraged about their finances.
Oil prices were steadier Wednesday following slides earlier in the
week on optimism about the tentative U.S.-Iran deal to get the
global flow of oil going again. Iran is set to take steps to reopen
the Strait of Hormuz once the deal is signed, which would allow oil
tankers to deliver crude from the Persian Gulf again and hopefully
take pressure off inflation.
The price for a barrel of Brent crude oil rose 0.7% to $79.55. It’s
still above its roughly $70 price from before the war, but it’s well
below its $100-plus price from a few weeks ago.
In stock markets abroad, indexes were mixed across Europe and Asia.
South Korea’s Kospi jumped 1.6%, and Hong Kong’s Hang Seng fell 0.7%
for two of the world’s bigger moves.
___
AP Business Writers Chan Ho-him, Matt Ott and Elaine Kurtenbach
contributed to this report.
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