While you were sleeping: UPDATED: US stocks plunge as Fed hits pause button

Stocks on Wall Street plunged in the final minutes of trading after the US Federal Reserve kept official interest rates on hold, as expected.

Most of the day's trading was in positive territory, including just after the Fed's decision was made known. The Federal Open Market Committee signalled an even more gradual path for any future rate increases.

The sudden plunge took the Dow Jones Industrial Average down 34.65 points or 0.2% to 17,640.17 for the third day of losses. The Nasdaq Composite Index lost 0.2% to 4834.93 and the Standard & Poor's 500 Index also fell 0.2% to 2071.50.

Bond yields declined and the US dollar sank after the Fed statement. The yield on the 10-year U.S. Treasury declined to 1.594% from 1.611% on Tuesday, when it settled at its lowest yield since December 2012.

Shares of utilities companies, which are the best performers in the S&P 500 in 2016, slipped 0.7%.

Gold surged, briefly hitting $US1300 an ounce before giving up some gains. Futures settled 0.5% higher at $US1294.80 giving gold a gain of 22% so far this year.

Oil prices fell for the fifth-straight session, hitting a three-week low of $US48.01 a barrel.

Rates to remain low
"The pace of improvement in the labour market has slowed while growth in economic activity appears to have picked up," the FOMC said in a statement at the end of its two-day policy meeting.

The Fed predicts "only gradual increases" in its target interest rate.

"The Federal funds rate is likely to remain, for some time, below levels that are expected to prevail in the longer run," the FOMC continued.

The median projection of officials for the federal funds rate suggested two quarter-point increases in the FOMC's four remaining meetings this year.

"It's as dovish as the Fed can get without actually cutting rates," said Brian Jacobsen, chief portfolio strategist at Wells Fargo Fund Management. "Even [Kansas City Fed President] Esther George withdrew her dissent. The path of rates is lower, which is a big dovish swing."

Importantly, the number of officials who predict one rate hike this year climbed to six, up from one in March. 

"That's a big shift and an important one – it helps the overall bond market for the Fed and the investor outlook to be as close as possible," Jim Vogel, head of interest-rate strategy at FTN Financial in Memphis, Tennessee, told Bloomberg about the change in officials' projections.

"This should reduce volatility and allow Treasury investors to focus on what's coming ahead rather than devote energy to what the Fed may be doing.".

Brexit influences Fed
In Europe, the Stoxx 600 Index finished the day with a gain of 1% from the previous close. The UK's FTSE 100 index rose 0.7%, Germany's DAX index increased 0.9%, while France's CAC 40 index moved 1% higher.

In a press conference after the FOMC meeting, Fed chairwoman Janet Yellen said the June 23 referendum in the UK on whether to remain in the European Union influenced the US central bank's decision to keep interest rates unchanged.

"It is a decision that could have consequences for economic and financial conditions in global financial markets," she said, Bloomberg reported.

A vote by Britons to leave the EU "could have consequences in turn for the US economic outlook," she said.

(BusinessDesk)