(Updates with index/price moves, FedWatch outlook, macro data, and political/company news from the first paragraph.)
US equity indexes fell while government bond yields jumped as odds favoring higher interest rates this year surged after the Federal Reserve removed the so-called easing bias from its policy statement.
The Nasdaq Composite fell 1.4% to 26,021.66, with the S&P 500 down 1.2% to 7,420.10 and the Dow Jones Industrial Average lower by 1% to 51,492.55 on Wednesday. All sectors fell, with communication services, consumer discretionary, and consumer staples leading the decliners at the close.
The Fed left its benchmark rate unchanged in the 3.50% to 3.75% range in a unanimous decision announced Wednesday, excluding language that suggested a lingering bias toward cuts.
"Economic activity is expanding at a solid pace despite elevated uncertainty that owes, in part, to the conflict in the Middle East," the Fed statement said. "Job gains have kept pace with the workforce, and the unemployment rate has changed little."
The probability of a 25-basis-point increase in rates to a target range of 3.75% to 4% in July soared to 35% from 9% a day ago, according to the CME FedWatch tool. The comparisons for September were 47% versus 27%, and, for October, the data showed an increase to 45% from 33%. Strikingly, there is a 33% likelihood that rates will be 4% to 4.25% in December, implying that the Fed may raise rates by another 25 basis points even after tightening policy once between July and October.
In economic news, retail sales climbed 0.9% after a downwardly revised 0.4% gain in April, the Census Bureau reported Wednesday. The consensus was for a 0.6% increase in May, based on a Bloomberg survey.
Pending home sales rose by 3.8% in May, above the 0.9% increase expected in a survey compiled by Bloomberg and following a 0.3% increase in April, according to the National Association of Realtors. The monthly sales index was up 4.8% from a year ago.
US Treasury yields jumped, with the 10-year surging 6.1 basis points to 4.49% and the two-year soaring 14.8 basis points to 4.2%.
In geopolitical news, the US draft of the framework agreement with Iran includes a new 'minimum' standard for diluting Iran's uranium and toll-free passage of the Strait of Hormuz for 60 days, senior US officials told the Associated Press. That shows the US draft does not preclude Iran from imposing fees on maritime traffic after the fixed period.
The US draft includes provisions to ensure "territorial integrity" of Lebanon after Israel's latest attacks in the country against the militant outfit Hezbollah, the officials were cited as saying. In return, the US will waive, but not eliminate, some sanctions that were previously imposed on Iran after the deal is signed on Friday, the news report said, adding that Tehran has not released its version of the peace deal.
In his closing remarks at the G7 summit in France, French President Emmanuel Macron said that it is vital that Iran, Hezbollah, and Israel do not resume fighting, while noting that Paris supports a preliminary US-Iran deal to end the war, according to CNN.
Front-month global benchmark North Sea Brent slipped 0.1% to $78.85 per barrel, and US West Texas Intermediate edged 0.2% lower to $75.92 per barrel.
In company news, Moderna (MRNA) plans to invest in production sites in Germany and is interested in the plants that BioNTech (BNTX) has slated for closure, according to a Google translation of a Wednesday report published by German news outlet Handelsblatt. Shares of the COVID vaccine manufacturer soared 12%, the biggest outperformer on the S&P 500.