The Fed held rates yesterday, but half the committee said hikes are coming this year - and stocks dropped fast.
The S&P 500 fell 1.2%, Treasury yields jumped, and money markets are now pricing in a hike by October.
Fed officials left rates alone for the fourth meeting in a row, but the dot plot - a chart of where members see rates going - showed a clear shift.
Half of Fed members now expect at least one rate hike by year-end, and money markets caught up fast - a hike is likely by September and fully priced by October.
Two-year Treasury yields - the part of the bond market that tracks Fed bets - jumped 13 basis points to 4.18%, sending the S&P 500 down 1.2% near the close as the Nasdaq 100 fell 1%.
"Half the committee is expecting rate hikes this year, which is a real shot across the bow at the market," said Bob Michele of JPMorgan Asset Management. "I think they're getting ready for rate hikes."
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This was Kevin Warsh's first press conference as Fed Chair, and he didn't tip the next move.
What he did: remind everyone that inflation has stayed above the Fed's 2% target for years, while ruling out reconsidering the target.
Warsh also announced a task force to review the Fed's $6.7 trillion balance sheet, with the group set to look at how rate policy and balance-sheet policy feed into the economy.
The committee called growth "solid" and pointed to strong productivity gains and capital investment, signaling that inflation - not jobs - is now the bigger worry.
The yen fell to its lowest level against the dollar since July 2024 - the level where Japanese officials usually start talking about stepping in.
The Bank of Japan raised rates this week, but investors don't think it's moving fast enough to defend the currency or control inflation.
Deputy Governor Shinichi Uchida said the exchange rate matters but isn't a direct target, which markets read as "we're not stepping in yet."
Equity futures for Japan, South Korea, and Australia all pointed lower, while US oil fell 1.4% to near $76 a barrel.
Trump said an interim peace deal with Iran could be signed as soon as Thursday, with a draft that would reopen the Strait of Hormuz quickly and push nuclear talks down the road.
Oil traders have already moved on - crude prices never broke past their peaks from the early days of the Russia-Ukraine war, even with shooting in the Middle East.
"The market's moved past the war," Morgan Stanley's Mike Wilson said. "We just learned how much supply is out there."
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