U.S. stocks fell in volatile trading Wednesday after the Federal Reserve delivered its seventh and final interest rate increase of 2022 and Chair Jerome Powell asserted in hawkish remarks that further tightening would come in the new year.

The central bank lifted its key policy rate by half a percentage point, slowing the pace from hikes of 75 basis points across the prior four meetings. The move brings the federal funds rate to a new range of 4.25% to 4.5%, the highest level since December 2007.

The S&P 500 (^GSPC) declined 0.6% after two days of gains, while the Dow Jones Industrial Average (^DJI) shed about 140 points, or 0.4%. The technology-heavy Nasdaq Composite (^IXIC) was off by 0.8%. U.S. Treasury yields held steady after a brief jump following the decision.

"Restoring price stability will likely require maintaining a restrictive policy stance for some time," Powell said in a speech following the rate announcement.

Fresh economic forecasts from the Fed that accompanied the decision show officials now see benchmark interest rates peaking at a median of 5.1% in 2023, 50 basis points higher than the previously projected 4.6% in September. Officials then see rates coming down to 4.1% in 2024, also slightly higher than previously projected.

"A downshift by the Fed was well-telegraphed so the hike was likely priced in, but some investors may have been surprised by the Fed’s fund forecast showing a more hawkish outlook than expected—a reminder that even though we may be approaching the finish line, we aren’t there yet," Mike Loewengart, head of model portfolio construction at Morgan Stanley, said in an emailed note.

"While it was good to see inflation come down these last two months, the Fed will need to see a few more signs over a longer time frame that inflation is under control before a full pivot."

The decision follows Wednesday’s closely watched November Consumer Price Index (CPI), which rose at an annual 7.1% clip last month, the second consecutive downside surprise in inflation data. Stocks closed higher following the report, but Wall Street’s reaction was underwhelming, with uncertainty still ahead around how much further rates need to go to quell prices that remain persistently high.

While a downshift in inflation was welcome on Wednesday, equity markets pared much of the gains that came immediately following the print as traders thought, “what now?,” BMO Wealth Management’s Chief Investment Strategist Yung-Yu Ma said in an emailed note.

“The Fed is still going to focus on the labor market imbalance, a dovish pivot is still a long way off, and in the meantime, companies and consumers have to recalibrate to the impact of higher interest rates and a slowing economy,” Ma added. “It’s all a balancing act, which we believe points to near-term choppy markets even though the improving inflation backdrop adds a positive bias.”