Dow notches fresh record close after Federal Reserve raises rates

U.S. equities closed mixed on Wednesday after the Federal Reserve raised interest rates for the second time this year.

The Dow Jones industrial average ended about 45 points higher after briefly dipping. The 30-stock index also hit intraday and closing records.

The S&P 500 slipped 0.1 percent, as energy and materials all fell more than 1 percent. Energy was dragged lower by falling crude prices, which were pressured by a smaller-than-expected drawdown in U.S. oil inventories.

Fed Chair Janet Yellen "wants to hike again and stocks don't like that. She acknowledged the falling inflation rate and still said she want to hike again and still wants to reduce the balance sheet," said Peter Boockvar, chief market analyst at The Lindsey Group.

However, Bodhi Ganguli, lead economist at Dun & Bradstreet, said: "We'll need a significant deterioration in the dual mandate for the Fed to hold off on raising rates further. A little weakness in inflation won't be enough."

The Nasdaq composite pulled back 0.4 percent.

The Fed raised rates by 25 basis points, as was widely expected, and kept is rate forecast unchanged. The central bank noted that household spending had "picked up in recent months," an upgrade from the May statement.

The Fed also provided more details on how it plans to reduce its massive $4.5 trillion balance sheet.

Quincy Krosby, chief market strategist at Prudential Financial, said the Fed "appears intent on normalizing rates, as well as winding down its balance sheet, as Chair Yellen's tenure expires."

However, the Fed now believes inflation will fall well short of its target this year. The statement noted that inflation in the next 12 months "is expected to remain somewhat below 2 percent in the near term" but to stabilize.

"This is a statement that was largely in line with expectations and didn't ruffle many feathers," said Art Hogan, chief market strategist at Wunderlich Securities. "They raised concerns about inflation — that's dovish — but the dot plots didn't change, score one for hawks."

The Fed's preferred inflation measure, the PCE deflator, came in at a weaker 1.5 percent, well below the Fed's 2 percent inflation target.

"We've got this deflationary backdrop and because the Fed is paying so much attention to the Phillips curve, they may not be paying so much attention to other factors in the economy," said Gary Cloud, fixed income portfolio manager of the Hennessy Equity and Income Fund.

The latest consumer price index reading, released Wednesday, fell 0.1 percent. Economists expected CPI to rise 0.2 percent.

Kathy Jones, chief fixed income strategist at Charles Schwab, said: "On the surface, you look at it and say: 'Why are you raising rates?'"

U.S. Treasurys held higher after the Fed's announcement, with the benchmark 10-year yield sliding to 2.145 percent; it traded near 2.2 percent earlier in the session.

"The [bond] market reaction was as expected, but for the wrong reason," said Richard Piccirillo, managing director at PGIM Fixed Income. "We got a bit more hawkishness in the statement but the market didn't react."

The Dow Jones industrial average (Dow Jones Global Indexes: .DJI) rose 46.09 points, or 0.22 percent, to close at 21,374.56, with Home Depot leading advancers and Chevron lagging.

The S&P 500 (INDEX: .SPX) declined 2.43 points, or 0.1 percent, to end at 2,437.92, with energy leading five sectors lower and consumer staples outperforming.

The Nasdaq (NASDAQ: .IXIC) closed 25.48 points lower, or 0.41 percent, at 6,194.89.

Decliners were a step ahead of advancers at the New York Stock Exchange, with an exchange volume of 881.53 million and a composite volume of 3.528 billion at the close.

The CBOE Volatility Index (VIX) (STOXX: .VIX), widely considered the best gauge of fear in the market, traded near 10.6.

—CNBC's Jeff Cox contributed to this report.

On tap this week:

Thursday

8:30 a.m. Initial claims

8:30 a.m. Import prices

8:30 a.m. Empire state manufacturing

8:30 a.m. Philadelphia Fed survey

9:15 a.m. Industrial production

10:00 a.m. NAHB survey

4:00 p.m. TIC data

Friday

8:30 a.m. Housing starts

8:30 a.m. Business leaders

10:00 a.m. Consumer sentiment

12:45 p.m. Dallas Fed President Rob Kaplan

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