Wall Street's three major indexes were lower on Wednesday after the Federal Reserve signaled that it expects another rate hike by year end and disclosed timing for reducing its balance sheet.
The Fed left interest rates unchanged on Wednesday but signaled it still expects one more increase by the end of the year despite recent weak inflation readings.
As expected, it said it would begin in October to reduce its approximately $4.2 trillion in holdings of U.S. Treasury bonds and mortgage-backed securities by initially cutting up to $10 billion each month from the amount of maturing securities it reinvests.
"If you want to build the case for why this is hawkish, the path you can go down was that they were dismissive of hurricane impacts, basically saying that it’s going to inflict hardship but net-net it’s going to levy a modest negative impact. Maybe the reality is starting to sink in for the market that they really do want to go in December,” said Tom Porcelli, chief U.S. economist, RBC Capital Markets, New York.
The Dow Jones Industrial Average <.DJI> fell 47.02 points, or 0.21 percent, to 22,323.78, the S&P 500 <.SPX> lost 9.07 points, or 0.36 percent, to 2,497.58 and the Nasdaq Composite <.IXIC> dropped 42.85 points, or 0.66 percent, to 6,418.48.
The S&P's financial <SPSY> sector rose after the news as banks benefit from higher rates, while rate-sensitive utilities <.SPLRCU> fell.
The major indexes hit record highs this week but trading has kept a tight range as investors waited on the Fed. They will closely watch Fed Chair Janet Yellen's press conference for her views on inflation.
Inflation has remained below the Fed's 2-percent target rate, but recent data showed uptick in domestic consumer prices, which raised the chances of a December rate hike by more than 50 percent for the first time since July.
Ahead of the statement, traders were betting on a roughly 51 percent chance of a December hike, compared with 37.3 percent a month ago, according to the CME Group's FedWatch tool.
Advancing issues outnumbered declining ones on the NYSE by a 1.07-to-1 ratio; on Nasdaq, a 1.10-to-1 ratio favored advancers.
(Additional reporting by Karen Brettell in New York, Sruthi Shankar in Bengaluru; Editing by Arun Koyyur and Nick Zieminski)