NEW YORK (AP) — U.S. stocks dropped on speculation the Federal Reserve may raise interest rates this year to keep a lid on inflation. The S&P 500 slumped 1.2% Wednesday after the Fed released projections showing nearly half its policymakers foresee at least one increase to its main interest rate this year. The Dow Jones Industrial Average went from a gain of 0.5% in the morning to a drop of 1%, while the Nasdaq composite sank 1.3%. Treasury yields climbed on rising expectations for a hike to rates in 2026. Higher rates can tap the brakes on inflation, but they also slow the economy and hurt prices for investments.THIS IS A BREAKING NEWS UPDATE. AP’s earlier story follows below.NEW YORK (AP) — The U.S. stock market sank Wednesday after nearly half the policymakers at the Federal Reserve indicated they may want to raise interest rates before the end of the year. Higher rates can keep a lid on inflation, but they also slow the economy and hurt prices for investments.The S&P 500 slumped 1.1% and erased an earlier, modest gain after the Fed released projections showing nine of 18 policymakers see the central bank raising its main interest rate at least once this year. The Dow Jones Industrial Average went from a gain of 281 points in the morning to a drop of 438 points, or 0.8%, as of 3:30 p.m. Eastern time, and the Nasdaq composite sank 1%.One important policymaker at the Fed did not give a forecast for where the federal funds rate may end 2026 and the next couple years: Chairman Kevin Warsh. In his first press conference as head of the U.S. central bank, Warsh said he’s also considering a revamp of how the Fed communicates with the market and U.S. households and businesses.That includes the end of dropping 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 data about inflation, the job market and other economic data based on how they affect prices for stocks, bonds and other investments rather than how it expects the Federal Reserve to react to them.As part of that, Warsh said the Fed could make changes in its usual release of projections every three months showing where Fed officials suspect interest rates, the economy and inflation are heading in upcoming years.For now, though, Wall Street reacted uneasily to Fed officials’ latest set of projections. Stocks zigzagged up and down several times following the release. The Fed also decided to keep the federal funds rate steady at this meeting, as it has all year so far.In the bond market, Treasury yields climbed. The yield on the 10-year Treasury, which influences rates for mortgages and other loans going to U.S. households and businesses, rose to 4.48% from 4.43% late Tuesday. The two-year Treasury yield, which more closely tracks expectations for Fed action, jumped more. It climbed to 4.20% from 4.05%.High yields in bond markets worldwide caused by worries about inflation have been threatening to slow economies and undercut prices for all kinds of investments.In the stock market, SpaceX erased an early gain and dropped 3.3%. It’s potentially on track for its first loss since its ballyhooed debut on the U.S. stock market last week.That helped overshadow a jump of 15.2% 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.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 U.S. shoppers feel more discouraged about their finances.Iran is set to immediately take steps to reopen the Strait of Hormuz once the deal is signed, and that would allow oil tankers to exit the Persian Gulf once again and deliver crude to customers worldwide. The hope is that will take pressure off inflation.Oil prices were steadier Wednesday following sharp slides earlier in the week on optimism about the tentative U.S.-Iran deal to get the global flow of oil going again. The price for a barrel of Brent crude oil rose 0.7% to $79.55. It’s still above its roughly $70 price from before the war, but it’s well below its $100-plus price from a few weeks ago.Iran is set to immediately take steps to reopen the Strait of Hormuz once the deal is signed, and that would allow oil tankers to exit the Persian Gulf once again and deliver crude to customers worldwide. The hope is that will take pressure off inflation.In stock markets abroad, indexes were mixed across Europe and Asia.London’s FTSE 100 added 0.1% after a report showed U.K. inflation remained at 2.8% in May.South Korea’s Kospi jumped 1.6%, and Hong Kong’s Hang Seng fell 0.7% for two of the world’s bigger moves.AP Business Writers Chan Ho-him, Matt Ott and Elaine Kurtenbach contributed to this report.
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