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S&P 500 Drops as Fed Hike Odds Hit 93%, First Rise Since 2023

Yahoo Finance2 min read6 sources

Why is the S&P 500 falling today?

The S&P 500 (SPX) is falling Wednesday as markets price 93% odds the Fed will raise rates to 3.75–4.00%, the first hike since 2023, after August inflation came in at 3.4% year-over-year.

Key numbers

Fed hike probability (CME FedWatch)93%up from 56% on Sep 8
Target Fed funds rate if hiked3.75–4.00%+25bp from 3.50–3.75%
August CPI year-over-year3.4%+140bp above Fed's 2% goal
10-year Treasury yield5.04%highest since 2007
S&P 500 level (Sep 14)7,585.73-0.5% on the day (per [6])
Avg S&P 500 decline, 1 month after first hike-3.4%historical average across cycles (per [6])

What happened

The S&P 500 (SPX) is falling Wednesday as markets price 93% odds the Fed will raise rates to 3.75–4.00%, the first hike since 2023, after August inflation came in at 3.4% year-over-year. Fed Chair Kevin Warsh is set to announce the 25-basis-point decision at 2 p.m. ET today, followed by a press conference at 2:30 p.m.; August consumer prices ran 140 basis points above the Fed's 2% goal while the 10-year Treasury yield touched 5.04%, a level last seen in 2007. History is not encouraging: the S&P 500 has averaged a 3.4% decline in the month after the first rate hike of a new tightening cycle, with Goldman Sachs data showing an average minus-2% return over the following three months (per).

Why it matters

The S&P 500's decline today is a signal of broader pressure: when the Fed raises interest rates, borrowing becomes more expensive for everyone — mortgages, car loans, and credit card balances all cost more. Higher rates also make bonds — now yielding over 5% on the 10-year — a more attractive place to put money compared with stocks, pulling equity prices lower. Markets are already pricing a 46% chance of another 25-basis-point hike in late October, meaning today may not be the last move.

Who this affects

Marketbearish
High impact
S&P 500 faces 3.4% historical drop risk after first hike (per).
Companybearish
Medium impact
Indebted US companies face higher borrowing costs and lower profits.
Competitorsmixed
Medium impact
Bank margins improve; housing and rate-sensitive sectors weaken.
Industrymixed
High impact
Savers gain; borrowers face higher mortgage and credit-card rates.

S&P 500 vs Nasdaq Composite, Dow Jones, Russell 2000

S&P 500SPX7,585.73-0.5%—>23x
Nasdaq CompositeCOMP————
Dow JonesDJI————
Russell 2000RUT————

As of 2026-09-14

How we got here

  1. Last Fed hike under Powell takes rates to 5.25–5.50%; cuts follow in 2024–25.

  2. August CPI prints 3.4% y/y; hike odds jump from ~30% to 89% in hours.

  3. 10-year Treasury yield hits 5.04%; Goldman Sachs revises forecast to expect September hike.

  4. Fed decision due 2 p.m. ET; 93% odds of 25bp hike to 3.75–4.00%.

What to watch

  • Fed statement and Warsh press conference at 2 p.m. / 2:30 p.m. ET today.2026-09-16
  • CME FedWatch pricing 46% odds of another 25bp hike at October meeting.2026-10-29
  • S&P 500 one-month return: history shows average -3.4% after a cycle's first hike (per).2026-10-16

Educational content only. Not investment advice.

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