NEW YORK, July 30 — Wall Street stocks finished sharply lower yesterday after the Federal Reserve kept interest rates unchanged despite lofty US inflation as escalations in the Middle East war pushed oil prices skyward.

Major US indices ended down more than 1.5 per cent after initially greeting the Fed’s decision to keep interest rates level.

However, markets shifted course during Fed Chair Kevin Warsh’s press conference where he pledged to achieve price stability and return inflation to the US central bank’s two per cent target as he simultaneously defended a decision to not hike interest rates.

“The market is getting mixed messages from the Fed,” said Adam Sarhan of 50 Park Investments.

“Basically, we’re left with a situation where the problem is not solved,” said Sarhan of inflation that stood at 3.5 per cent in June on an annual basis.

Besides the Fed decision, the market also digested the latest spike in oil prices after President Donald Trump vowed to hit back hard at Iran after it attacked US bases in Jordan.

Yesterday, Saudi Arabia and the United States announced strikes on militant bases in Iraq, while US ally Israel accused Iran-backed Hezbollah of a truce violation.

International benchmark Brent oil futures shot up nearly eight per cent to US$90.74 a barrel.

“We continue to see oil prices and inflation pressures moving higher as inventories drain further amid the lack of peace in the Persian Gulf,” said a note from Bart Melek of TD Securities.

Equity investors have also been on guard about earnings from large technology companies at the nexus of the buildout of artificial intelligence infrastructure central to the US economic growth outlook.

After a blowout second quarter, the Nasdaq-100 index earlier this week slipped into a correction, defined as a drop of 10 per cent or more.

Analysts have seen the tech industry pullback as prompted by worries the current batch of earnings won’t justify the second-quarter gains.

Yesterday afternoon after the stock market closed, Microsoft gained after its earnings, while Meta fell sharply.

At the Fed meeting, Warsh reiterated his commitment to achieving price stability.

“We are on the job. We will deliver. We are focused like a laser, making sure we can do it,” he said, adding that there was “no magic wand” with which the Fed could lower inflation quickly.

But DoubleLine CEO Jeffrey Gundlach told CNBC that the bond market’s reaction showed it was skeptical of Warsh’s statements. The yield on the 30-year US Treasury hit 5.22 per cent, well above the 4.61 per cent level before the start of the Middle East warn.

“If you really want to get to two per cent, I think you have to raise interest rates,” Gundlach told CNBC. “The bond market vigilantes are saying, ‘If you really want us to believe your rhetoric, you’ve got to start acting.’”

Arun Sundaram, senior vice president at CFRA Research, said the jump in the 30-year Treasury yield “is likely a signal that investors doubt the Fed’s credibility in returning inflation to its 2 per cent target.”

The dollar also pulled back against the euro and other major currencies.

Earlier, London’s benchmark FTSE 100 managed to set a record high as surging oil prices boosted energy majors Shell and BP.

London’s main index hit 10,951.06 points, beating its previous record of 10,934.94 reached at the end of February, before paring gains.

The South Korean index -- seen as a bellwether for the AI industry owing to the outsize dominance of tech firms SK hynix and Samsung -- slumped six per cent to extend Tuesday’s near 11-per cent collapse.

Chipmaker SK hynix shed almost 20 per cent despite announcing huge profits and promising to continue spending. The company has lost more than half its value since hitting a record high just one month ago.

Tokyo’s stock market closed down 1.5 per cent and Taipei dropped nearly four per cent.

Elsewhere, the Hermes share price tumbled more than 11 per cent on the Paris market after its results showed demand in key market China is not reviving.

However, shares in Gucci parent Kering soared more than 15 per cent on the Paris CAC 40. — AFP