Explained - Why did the Dow Jones fall 800 points from highs on Wednesday

US stock markets took a turn lower on Wednesday, June 17, after the US Federal Reserve's policy decision, the first under new chair Kevin Warsh, led to inclinations over a potential rate hike by the end of the year, sending bond yields soaring.

The Dow Jones, which was up nearly 300 points before the policy decision was announced, reversed course to end with losses of 500 points. The index, at the day's low, was down 600 points. The S&P 500 and Nasdaq, which were trading with caution before the policy, ended with losses of over 1% each.

Why Did US Markets Fall From Day's High?

On expected lines, the FOMC left interest rates unchanged between 3.5% to 3.75%. However, Fed Chair Kevin Warsh laid significant emphasis on the committee delivering price stability as inflation remains well above their 2% target.

The "Dot Plot" or projections of where are the Fed rates headed in the future, saw the FOMC being divided 9-9 between those who see rates stable to one rate cut, and those who see rates stable to one rate hike. The Dot Plot pointed to one hike by the end of the year. Kevin Warsh did not participate in the projections.

The news of a potential rate hikes sent bond markets into action with the two-year bond yield, the closest to Fed's moves, rising by over 16 basis points to 4.21%. The 10-year bond yield also remains near the 4.5% mark. Rising bond yields sent equity markets lower post the Fed policy.

Fed Policy Sends The Dollar Higher

While the Fed policy strengthened the bond yields, the US Dollar index also firmed up after projections of a rate hike by the end of the year.

The US Dollar index is now trading with gains of close to a percent, well above the mark of 100.

Wall Street Futures Rebound

Futures on Wall Street are rebounding this morning after the overnight sell-off. The Dow futures are up 130 points, while the S&P 500 and Nasdaq futures are trading 35 and 250 points higher respectively.

While Wall Street will have a full trading day on Thursday, reacting to the signing of the deal between the US and Iran, along with the consequent fall in crude oil prices, they will remain shut on Friday on account of the Juneteenth holiday.