Kevin Warsh's first Federal Reserve meeting as chairman rattled markets after policymakers signaled potential rate increases by year-end. The Fed kept its benchmark rate steady, but updated projections show nine of 19 officials now expect hikes, up sharply from zero in March. Warsh's repeated emphasis on returning inflation to the 2% target suggests continuity with the central bank's hawkish stance despite his Trump appointment.

Investors interpreted the message as confirmation that Warsh will maintain Fed independence and pursue tighter monetary policy. The reaction was swift and severe across asset classes. Treasury yields spiked as bond prices tumbled, with the 2-year note jumping above 4.2% and the 10-year climbing to nearly 4.5%. Both instruments are critical gauges for borrowing costs across the economy.

Equities suffered broad-based losses, wiping out gains from recent sessions. The S&P 500 dropped 1.2% while the Dow industrials fell 1% to close 507 points lower. The Nasdaq composite declined 1.3%, with consumer discretionary shares among the hardest hit. Retailers including Target, Estée Lauder and Dollar General saw significant declines alongside Salesforce, which led Dow losers with a 4.1% drop.

The market's negative response reflects investor anxiety about prolonged higher-for-longer interest rates. With inflation still above target and economic growth showing resilience, the Fed's hawkish pivot under new leadership suggests monetary tightening may extend well beyond what many market participants had priced in.