The Federal Reserve raised its policy interest rate by 25 basis points Wednesday, the central bank’s first increase in more than three years, and equity markets moved lower as traders priced in a tighter path for borrowing costs.
The decision was unanimous, and the Fed said the increase is intended to help steer inflation back toward the committee’s 2% target after several years above that threshold. Updated dot plots released with the Fed’s quarterly projections show most policymakers expect one more rate increase before year-end. Fed Chairman Kevin Warsh said, "inflation is too high and has been for too long," and added that the hike reflects the central bank’s commitment to reducing inflation, while noting the economy looks stronger but faces geopolitical headwinds.
Stocks reacted quickly, with the S&P 500 slipping after the announcement. Market attention will now shift to the Fed’s future guidance and how the dot plot’s signal of another move this year affects borrowing costs for consumers and businesses.
Corporate news split the session. Starbucks is weighing a sale of a majority stake in its Japan business in a deal that would value the operation at about $3 billion, while earlier reports had put a possible valuation at $2.5 billion. Japan is Starbucks’ largest international company-operated market, with 1,883 stores at the end of the last fiscal year. Management has moved toward an asset-light approach elsewhere, beginning with a sale of a stake in China and formation of a joint venture with Boyu Capital in April, and a stake sale in Japan would continue that strategy while supplying cash the company could use for stores, technology, debt or buybacks. Shares of Starbucks were slightly higher Wednesday afternoon and had been up roughly 1.65% at their intra-day highs before the Fed decision.
GE Vernova provided a counterpoint, rallying more than 4% after CEO Scott Strazik delivered a bullish presentation at the Morgan Stanley Laguna Conference. The company had entered Wednesday down almost 20% since mid-August. Strazik said Vernova is on track to reach a $200 billion backlog "very early in 2027," up from a $176 billion backlog at the end of June. He added that multiple slot reservations for 2032 deliveries have been agreed and that new turbine supply for 2030 and 2031, totaling 12 gigawatts, "is in some form of contracting," with a "very strong market response ... at premium pricing." Vernova plans an investor day next year to set its 2030 financial outlook, and Strazik said that the company’s 2030 projection will make its prior 2035 services revenue target of $22 billion look low; that target had been set against a $12 billion services estimate for 2025.
Looking ahead, homebuilder Lennar is due to report quarterly results after Wednesday’s close, and Thursday’s calendar will feature new data on jobless claims, housing starts and building permits, and pending home sales. Investors will be watching economic releases and corporate results closely for signals about the Fed’s next steps and the durability of demand across cyclical sectors.
