Fed builds credibility, but hawkish turn leaves investors edgy

The US Federal Reserve raised interest rates for the first time since 2023 by a quarter percentage point to 3.75-4.00 percent in a unanimous vote, signaling a hawkish turn as inflation remains above target at 3.3 percent on core PCE. Fed officials now expect one more rate hike this year and steady policy in 2027, with markets pricing in roughly even odds of another hike at the October meeting. The S&P 500 fell 0.45 percent, the US dollar strengthened sharply, and the 10-year yield hovered near 5 percent, raising concerns about FII outflows from emerging markets including India.