U.S. equities closed lower on Wednesday after the Federal Reserve kept interest rates unchanged, while worries surrounding the presidential election weighed on investor sentiment.
"There's no surprises here. This meeting was about setting the mood music ahead of the December meeting. All the signs now point to a hike in December. The labour market is doing well, inflation is creeping up and growth is good," Luke Bartholomew, fixed income investment manager at Aberdeen Asset Management.
"However, there's the small matter of the US election to navigate in between now and the US Federal Reserve's next meeting. That's why the statement carries enough room for the Fed to wriggle out come December if economic and financial conditions change," he said.
The Dow Jones industrial average briefly fell 100 points after the decision, before closing about 75 points lower. The index also closed below 18,000 for the first time since July 7. The S&P 500 fell 0.65 percent, posted a seven-day losing streak and closed below 2,100, with utilities and real estate falling more than 1 percent to lead decliners.
The Nasdaq composite dropped about 0.93 percent and briefly fell more than 1 percent. Earlier, the three major indexes broke above the flatline before retreating.
With financial markets anticipating a rate hike before the end of the year, the Federal Reserve held interest rates steady again while continuing to acknowledge that the case for a move is getting stronger.
"What they'd like to think they're doing is ensure the environment stays the same for December," said Robert Tipp, chief investment strategist at Prudential Fixed Income. But the election could change that environment, he said.
Federal Open Market Committee officials, however, made no direct nod to a coming rate increase at the December meeting, a move that the market is strongly anticipating. In fact, the dovish FOMC majority gained a vote.
The group in lieu of a rate hike released a statement acknowledging economic improvements that aren't yet enough to generate a policy tightening.
"My main takeaway is that the Fed is keeping its options open, which seems to be different from the market's initial reaction. I lean toward the FOMC not raising rates in December," said Jason Thomas, chief economist at AssetMark.