Stan ChoeUpdated June 18, 2026 — 6:25am,first published 5:11amUS stocks slumped 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 per cent 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 per cent, while the Nasdaq composite sank 1.3 per cent.New Fed chair Kevin Warsh answers questions after the decision was handed down. BloombergThe Australian sharemarket is set to lose ground, with futures at 6.09am AEST pointing to a fall of 67 points, or 0.8 per cent, at the open. The ASX added 0.5 per cent on Wednesday. The Australian dollar was trading lower at US70.10¢.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 US central bank, Warsh said he’s also considering a revamp of how the Fed communicates with financial markets and US 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.Warsh said the policy statement refrained from providing so-called forward guidance because it is not “well suited” to the current economic moment. When it comes to the monetary policy outlook, “I can’t give you any forward guidance about what we’re going to do next. The good news is we’ll be meeting in six weeks.”For now, Wall Street reacted uneasily to Fed officials’ latest set of projections, though Warsh cautioned he “didn’t hear tonnes 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.Wall Street lost ground after the Fed statement. APIn the bond market, Treasury yields climbed. The yield on the 10-year Treasury, which influences rates for mortgages and other loans going to US households and businesses, rose to 4.49 per cent from 4.43 per cent late Tuesday. The two-year Treasury yield, which more closely tracks expectations for Fed action, jumped to 4.21 per cent from 4.05 per cent.Traders upped their bets for at least one increase to the federal funds rate this year and now see an 84 per cent probability of it, up from 59.5 per cent 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 per cent for its first loss since its ballyhooed debut on the US stock market last week.Drops of 3.8 per cent for Microsoft, 3.5 per cent for Amazon and 1.3 per cent for Nvidia were three of the heaviest weights on the S&P 500.They helped overshadow a jump of 14.8 per cent 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 US shoppers feel more discouraged about their finances.Oil prices were steadier Wednesday following slides earlier in the week on optimism about the tentative US-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 per cent to $US79.55. It’s still above its roughly $US70 price from before the war, but it’s well below its $US100-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 per cent, and Hong Kong’s Hang Seng fell 0.7 per cent for two of the world’s bigger moves.From our partners