US stocks opened higher on Wednesday but reversed course and sold off sharply into the close after the Federal Reserve delivered its first rate hike in three years, with Chairman Kevin Warsh emphasizing that inflation remains persistent. At the closing bell, the Dow Jones Industrial Average tumbled 631.21 points, or 1.21%, to 51,461.90. The Nasdaq Composite slipped a marginal 0.01% to 25,978.42, while the S&P 500 fell 0.45% to 7,551.81.

Earlier in the day, the Fed unanimously approved a 25-basis-point rate increase, signaling that further tightening is likely in the near term to accelerate the return of inflation to target levels. The central bank's latest quarterly economic projections raised the PCE inflation forecast to 3.7%, and policymakers now expect inflation to return to the 2% goal only by 2029—a year later than previously anticipated. Meanwhile, the economic growth forecast was nudged up slightly to 2.3%, while the year-end unemployment rate estimate was cut to 4.1% from June's 4.3%.

In his post-meeting press conference, Chairman Warsh stressed that inflation risks have not improved. "The facts are clear: inflation is too high and has been for too long. This summer's inflation data does not convince me that there has been any substantial improvement in the underlying inflation trend."

Market concerns grew that even with Wednesday's hike, the Fed remains behind the curve in its fight against inflation. The 10-year Treasury yield pushed higher, climbing back above 5%, while the policy-sensitive 2-year yield rose 6.5 basis points to 4.725%.

Where the market found pockets of strength

Among mega-cap technology names, performance was mixed, with Amazon and Microsoft each slipping more than 1%. The broader tech sector proved relatively resilient. The Philadelphia Semiconductor Index advanced 0.63%, helped by a 4% gain in Intel, following reports that the chipmaker is in talks with South Korean memory giant SK Hynix to build a semiconductor plant in the US.

Optical communications stocks also shone, with Lumentum surging 9.59% and Coherent adding 6.92%. On the flip side, the energy sector was the laggard, dropping 3.0% as oil prices retreated. Chevron fell 2.9%, Exxon Mobil dropped 3.5%, and both Devon Energy and ConocoPhillips slid more than 5%.

Large bank stocks were broadly lower. Bank of America and Wells Fargo each fell close to 3% on worries that elevated rates will dampen credit growth and weigh on the economy, while American Express and Goldman Sachs each lost nearly 4%. Speaking at a Barclays conference on Wednesday, Goldman CEO David Solomon noted that fixed-income trading in the third fiscal quarter had underperformed equity trading, and that accelerated technology investments would drive higher costs for the bank.

Aerospace giant Boeing declined 3.7% after CEO Kelly Ortberg said that stabilizing 737 MAX production at 47 aircraft per month would take "longer than expected."

In Chinese ADRs, the Nasdaq Golden Dragon China Index shed 0.55%, with Baidu down 2.04% and Alibaba and NetEase each falling over 1%. Pinduoduo managed a 0.87% gain, while Trip.com climbed 3.01%.

Market commentary and the road ahead

Art Hogan, chief market strategist at B. Riley Wealth Management, noted that while the Fed's decision was "in line with consensus expectations," Warsh's more hawkish tone suggests that elevated yields may persist for some time. "The current market is being driven by the 10-year Treasury yield reclaiming 5%, which is a major psychological threshold," he said. "That yield curve move, combined with expectations that inflation stays higher for longer, will both act as headwinds for the market in the short term."

Ryan Detrick, chief market strategist at Carson Group, commented: "As widely expected, the Fed delivered its first rate hike in over three years. Chairman Warsh's hawkish speech at Jackson Hole a few weeks ago effectively painted himself into a corner. The unanimous vote was a bit of a surprise, but it underscores just how serious the Fed is about tackling the current broad-based inflation problem."

Wednesday's rate decision arrives less than two months before the US midterm elections, which will determine whether Republicans can maintain control of Congress for the remainder of President Trump's term. Voter frustration over fuel prices is running high—gasoline prices are roughly a third higher than a year ago—while mortgage rates have climbed steadily this year, with the average 30-year fixed rate nearing 7%. That combination is putting pressure on Republican candidates.

On the data front, the US Commerce Department's Census Bureau reported Wednesday that retail sales surged 1.2% last month, far exceeding expectations. Households boosted purchases of motor vehicles and stocked up for the new school year, underscoring the resilience of the American economy even as consumers grow increasingly anxious about high inflation.

Commodities in focus

International oil prices fell sharply. Light sweet crude for October delivery on the New York Mercantile Exchange dropped $3.40 to settle at $102.43 per barrel, a decline of 3.21%. Brent crude for November settlement lost $2.92, or 2.69%, to close at $105.83 per barrel.

Precious metals also took a hit in after-hours trading following the Fed's decision. COMEX gold futures for December delivery pulled back nearly 2% from their intraday highs, trading near $4,300 per ounce, while COMEX silver futures slipped 0.75% to $63.40 per ounce.