Stocks eased off session lows but still finished firmly in the red Wednesday after Federal Reserve Chair Janet Yellen suggested interest rate hikes would happen about six months after quantitative easing ends.
"The market is terrified of rising interest rates and any hint of them coming sooner than they think pushes it down the way it did," according to Dan Stecich Senior VP of economic research at Athena Advisor Services. "Ultimately, it should be a good thing for the markets as it means economy's doing well."
In its policy statement, the Fed said the benchmark federal-funds rate will remain near zero for a "considerable time" after its asset-purchase program ends. Yellen attempted to clarify the term, saying its is "hard to define" but "probably means something on the order of around six months."
"Assuming market participants anticipate QE ending in the fall, Yellen's comments could be interpreted as a rate increase in the spring of 2015," said Todd Salamone, director of research at Schaeffer's Investment Research. "That would be a negative in terms of timing because the general FOMC view is for a June 2015 rate hike and markets have been trading accordingly."
The central bank decided to cut its monthly asset bond purchase program by another $10 billion to $55 billion per month.
(Read more: Fed eases back the throttle, changes tune on rates)
The Dow Jones Industrial Average slumped 114.02 points to close at 16,222.17, initially tumbling nearly 200 points after Yellen's rate hike comment. The blue-chip index had been trading in a lackluster 50-point range prior to the decision.
The declined 11.48 points to finish at 1,860.77. And the Nasdaq fell 25.71 points to end at 4,307.60.
The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, ended above 15.