U.S. stocks pared earlier gains Wednesday after the Federal Reserve hinted to at least one more rate hike as it kept its benchmark lending rate unchanged following its closely-tracked two day policy meeting in Washington.
The Fed's Open Markets Committee held its key policy rate at between 5.25% and 5.5%, the highest in 22 years, in a move that was widely expected from markets following a quarter point rate hike in July.
The Fed's new Summary of Economic projections, known as the dot plots, now calls for GDP stronger growth of 2.1% this year, more than double its prior forecast, with the forecast for unemployment coming down to 3.9% from a prior estimate of 4.1%.
In terms of inflation, the Fed's dot plots suggests rate-setters are seeing core personal consumption expenditures inflation, the bank's preferred measure, easing to 3.7% this year from its prior estimate of 3.9%.
The dots also suggest that 12 members of the FOMC see at least one more rate cut, with 7 indicating the need for a pause in order to determine the impact of past hikes on the economy.
U.S. stocks pared earlier gains immediately following the Fed decision, with the S&P 500 marked 4 points lower, or 0.1%, lower on the session while the Dow Jones Industrial Average was up 135 points. The tech-focused Nasdaq was marked 55 points lower.
Benchmark 10-year Treasury note yields were marked 4 basis points higher at 4.353% while 2-year notes jumped 7 basis points to 5.127%.
The U.S. dollar index, meanwhile, was marked 0.13% lower at 105.006 against a basket of six global currency peers.
"This pause was unanimous, and the Fed may stay at this current rate for quite some time. The economy is growing stronger than the Fed thought and no one – not even Powell – knows what they will do in the 4th quarter," said Gina Bolvin, president of Boston-based Bolvin Wealth Management Group.
"We are far from the recession many have predicted and closer to a soft landing," she added.
"At present, markets are pricing in around a 36% chance the Fed will raise rates before the end of the year, either at its November or December meetings, with dovish signals from the European Central Bank last week, as well as a surprise dip in U.K. inflation last month ahead of Thursday's Bank of England rate meeting, driving bets that markets have reached the peak of the rate-hiking cycle.
In other markets, oil prices were somewhat softer in afternoon trading, but still near the highest levels in more than ten months after the Energy Department's weekly update on domestic stockpiles and production rates showed crude inventories fell by 2.1 million barrels over the week ending September 15 to 418.5 million.
Brent crude contracts for November delivery, the global pricing benchmark, were 89 cents lower at $93.43 per barrel while WTI contracts for October were marked 90 cents lower at $89.59 per barrel.
In Europe, the Stoxx 600 ended 0.92% higher in Frankfurt, while fading Bank of England rate bets, linked to the surprise pullback in inflation, helped the FTSE 100 to a 0.93% gain in London.
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