Wall Street closes lower after Fed holds rates steady, warns of higher for longer

Sept 20 (Reuters) - U.S. stocks slumped on Wednesday after the U.S. Federal Reserve held key interest rates unchanged as widely expected, and revised economic projections higher with warnings that the battle against inflation was far from over.

All three major U.S. stock indexes retreated in the wake of announcement, with interest rate sensitive megacap stocks Microsoft Corp (MSFT.O), Apple Inc (AAPL.O) and Nvidia Corp (NVDA.O) pulling the Nasdaq down most.

The Fed's announcement was accompanied by its 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 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 began tightening 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," Detrick said. "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."

The Dow Jones Industrial Average (.DJI) fell 76.85 points, or 0.22%, to 34,440.88, the S&P 500 (.SPX) lost 41.75 points, or 0.94%, to 4,402.2 and the Nasdaq Composite (.IXIC) dropped 209.06 points, or 1.53%, to 13,469.13.

Among the 11 major sectors of the S&P 500, interest rate sensitive communication services (.SPLRCL) and technology (.SPLRCT) suffered the largest percentage losses.

Marketing automation company Klaviyo (KVYO.N) advanced 9.2% in its debut on the New York Stock Exchange, the third recent initial public offering in recent days, following Arm Holdings and Maplebear Inc (CART.O).

"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 lost 10.7%, while fellow recent debut Arm Holdings was down 4.1%.

Pinterest (PINS.N) added 3.1% after the image-sharing firm announced a share buyback of up to $1 billion.

Coty (COTY.N) gained 4.4% after the CoverGirl parent hiked its annual core sales forecast.

Declining issues outnumbered advancing ones on the NYSE by a 1.46-to-1 ratio; on Nasdaq, a 1.90-to-1 ratio favored decliners.

The S&P 500 posted 14 new 52-week highs and 6 new lows; the Nasdaq Composite recorded 39 new highs and 246 new lows.

Volume on U.S. exchanges was 9.73 billion shares, compared with the 10.07 billion average for the full session over the last 20 trading days.

Reporting by Stephen Culp; Editing by David Gregorio