All three major U.S. stock indexes retreated in the wake of announcement and the accompanying Summary Economic Projections (SEP) and dot plot, which sees an additional 25 basis point rate hike this year, peaking in the 5.50%-5.75% range.

The SEP also projections also called for 50 basis points of rate cuts next year.

"It’s your standard Fed day volatility," said Ryan Detrick, chief market strategist at Carson Group in Omaha, Nebraska. "Yet it wasn’t really a curve-ball event, because markets took things in stride."

"This day has had a bull's eye on it all month and now we can move past it," Detrick added.

The updated projections see the Fed funds target rate edging down to 5.1% by the end of next year, and to 3.9% by the end of 2025.

Since the Fed embarked on its current tightening cycle in March, core inflation has cooled. But its slow descent toward the central bank's 2% target has been slow and uneven.

The SEP forecasts inflation to drop to 3.3% by year-end, and to approach the central bank's average annual 2% target.

At the subsequent press conference, Fed Chairman Jerome Powell tempered rosier economic projections with a warning that inflation has a long way to go before reaching that target.

The Fed didn’t really rock the boat. They acknowledged the strength in the economy, which also lowered the number of cuts that were expected next year, implying higher for longer is likely the path they will continue to take.

According to preliminary data, the S&P 500 lost 42.02 points, or 0.95%, to end at 4,401.93 points, while the Nasdaq Composite lost 209.62 points, or 1.53%, to 13,468.57. The Dow Jones Industrial Average fell 78.13 points, or 0.23%, to 34,439.60.

Marketing automation company Klaviyo surged in its debut on the New York Stock Exchange, the third recent initial public offering in recent days, following Arm Holdings and Maplebear Inc. But the shares pared their gains as the session wore on.

"It shows confidence is coming back to even have the large IPOS," Detrick said. "It's a sign that things are getting closer to normal which is something that is necessary at this stage of the business cycle."

Maplebear and Arm Holdings was lost ground, failing to hold onto their solid gains on debut.

Pinterest advanced after the image-sharing firm announced a share buyback of up to $1 billion.

Coty rose after the CoverGirl parent hiked its annual core sales forecast.