The U.S. stock market declined Wednesday following the Federal Reserve’s decision to raise its main interest rate for the first time in three years, with officials indicating the possibility of additional hikes ahead as they seek to rein in persistent inflation. The S&P 500 dropped 0.4%, the Dow Jones Industrial Average fell 631 points, or 1.2%, and the Nasdaq composite edged down by less than 0.1%.

Investors generally view higher interest rates with caution, as they tend to slow economic growth and reduce the appeal of stocks and other investments. After initial modest gains following the Fed’s announcement, stock prices weakened later in the day as Chairman Kevin Warsh emphasized in a news conference that inflation remains elevated and that the economy appears to be strengthening. This suggested the economy may be robust enough to absorb further rate increases, a view supported by forecasts from other Fed officials.

The central bank raised the federal funds rate to a range between 3.75% and 4%, up from the previous 3.5% to 3.75%. Median projections from Fed officials published after the meeting anticipate the rate could reach 4.1% by the end of the year, above the prior forecast of 3.8% made three months ago. Market traders are betting on a roughly 38% chance that the range might rise further to between 4.25% and 4.5% later this year.

Warsh highlighted ongoing strength in U.S. hiring, corporate profits, and business investments, alongside data showing consumer spending at retailers exceeded economists’ expectations last month. “Inflation is too high and has been for too long,” he said, adding that the day’s rate hike signals the Fed’s serious commitment to tackling it.

Bank stocks experienced some of the sharpest declines, as higher borrowing costs could reduce demand for loans and narrow the spread between short- and long-term interest rates—key to banks’ profitability. Huntington Bancshares fell 5.6%, Citizens Financial Group dropped 4.8%, and JPMorgan Chase declined 1%. J.B. Hunt Transport Services recorded the largest loss in the S&P 500, shedding 13.3% amid concerns over rising costs and guidance for a 5% to 10% earnings decline quarter-over-quarter.

Treasury yields reflected the market’s shifting expectations. The two-year Treasury yield rose to 4.74% from 4.67%, reflecting closer alignment with Fed policy moves, while the 10-year yield edged up slightly to 5.01%.

Energy stocks pressured the market as Brent crude prices fell 2.7% to $105.83 per barrel, marking the first decline of the week after recent gains near $110. Despite overall losses, shares in the artificial intelligence sector showed resilience, with Nvidia gaining 0.8% and Advanced Micro Devices climbing 1.6%, partially recovering from earlier-week declines prompted by industry calls for a slowdown in AI development to address safety concerns.

Globally, stock indexes rose across much of Europe and Asia, with South Korea’s Kospi gaining 1.4%. Inflation is a global challenge, prompting the European Central Bank last week to raise rates in a similar effort to reduce price pressures.