Fed plans two interest rate hikes by the end of 2023; Dow falls 265 points

June 16 (UPI) -- The Federal Reserve on Wednesday said it plans to make two interest rate increases by the end of 2023, sending U.S. markets to their session lows.

The Dow Jones Industrial Average closed the day down 265.66, or 0.77%, at the end of trading, while the S&P 500 dropped 0.54% and the Nasdaq Composite declined 0.24% as the central bank completed its two-day meeting.

Wednesday's announcement was a departure from the Fed's March update when it said that interest would remain near zero until 2024.

Upon the news the major indexes fell to their session lows with the Dow dropping as much as 382 points and the Nasdaq turning in losses as high as 1%.

"This is not what the market expected," James McCann, deputy chief economist at Aberdeen Standard Investments, told CNBC. "The Fed is now signaling that rates will need to rise sooner and faster ... This change in stance jars a little with the Fed's recent claims that the recent spike in inflation is temporary."

The Fed raised its headline inflation expectation to 3.4% for 2021, up a full percentage point from its projection in March.

Markets recovered slightly from their lows as Fed Chairman Jerome Powell said the projections should be taken with a "big grain of salt" in a news conference after the meeting.

The Fed did not indicate when it would begin to cut back on its COVID-19 relief program that has seen it buy $120 billion worth of bonds each month but Powell said the central bank will give "advanced notice" before announcing plans to halt asset purchases.

"You can think of this meeting that we had as the 'talking about talking about' meeting," Powell said. "In coming meetings, the committee will continue to assess the company's progress toward our goals."

Powell also said inflation could exceed the Fed's expectations as the economy recovers from the impacts of the COVID-19 pandemic.

"As the reopening continues, shifts in demand can be large and rapid and bottlenecks, hiring difficulties and other constraints could continue to limit how quickly supply can adjust, raising the possibility that inflation could turn out to be higher and more persistent than we expect," Powell said.

Apple stock dropped as much as 0.5% amid the rate hike news but closed the day up 0.39%, while stocks that would benefit from broad economic reopening saw a boost with Carnival rising 2.34% and Royal Caribbean gaining 1.94%.

So-called meme stocks faced pressure on Wednesday as AMC fell 6.4% and WWE stock, one of the most recent targets of Reddit traders, dropped 3.16%.