Investors' doubts about Federal Reserve Chairman Kevin Warsh’s commitment to fighting inflation manifested across markets, sending stocks sharply lower and longer-term bond yields higher. Warsh’s apparent reluctance to raise interest rates, even as renewed Middle East conflict threatened to boost energy costs, triggered the sell-off.

The Fed left interest rates unchanged, though three officials dissented, signaling a potential move towards a rate hike. However, during a press conference, Warsh suggested a near-term increase might not be necessary due to the recent rise in bond yields, which have already increased borrowing costs. He stated this rise “has provided us some comfort.”

This message led to a negative reaction in the bond market, which quickly impacted stocks. The S&P 500 closed down 1.5%, and the Dow Jones Industrial Average plunged over 1100 points, a 2.2% decline, marking its largest percentage drop since April 2025. The Nasdaq Composite also fell 1.7%.