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Fed holds rates steady, but raises inflation expectations sharply and makes no mention of taper.

U.S. stocks dropped to their session lows on Wednesday after the Federal Reserve raised its inflation expectations and moved up the time frame on when it will hike interest rates next.

The Dow Jones Industrial Average fell 320 points. The S&P 500 traded 0.7% lower after hitting an all-time high in the previous session. The tech-heavy Nasdaq Composite erased earlier gains and traded 0.5% lower.

Nine out of 11 S&P 500 sectors traded in the red, led to the downside by communication services and financials.

Economic reopening plays provided the broader market with some support. Major airline stocks American Airlines, United and Delta all traded higher. Royal Caribbean and Carnival both climbed 2% afteran upgrade from Wolfe Research.

The policymaking Federal Open Market Committee indicated that rate hikes could come as soon as 2023, after indicating in March that it saw no increases until at least 2024.

The Fed also raised its headline inflation expectation to 3.4%, a full percentage point higher than the March projection, the post-meeting statement continued to say that inflation pressures are "transitory."

Chairman Jerome Powell will hold a press conference at 2:30 p.m. ET.

The meeting came as inflation heats up, with producer prices rising at their fastest annual rate in nearly 11 years duringMay, a report on Tuesday showed. This has prompted some, including Paul Tudor Jones, to call for the central bank to re-think its easy monetary policy.

The central bank has been buying $120 billion worth of bonds each month as the economy continues to recover from the coronavirus pandemic.

"The drama this week will be whether the Fed sits tight or admits that inflation is rising and that the Fed needs to tighten," said Brad McMillan, CIO at Commonwealth Financial Network. "Since the Fed has a dual mandate—unemployment and inflation—that suggests it should indeed keep its focus on unemployment, rather than inflation."

Treasury Secretary Janet Yellen, who is testifying before the Senate Finance Committee Wednesday, said higher price pressures shouldn't last over the long run.

"I previously said that I see important transitory influences at work and I don't anticipate that it will be permanent," Yellen said. "But we continue to monitor inflation data very carefully, and importantly for the long run inflation outlook we see inflation expectations by most measures … as being well-anchored."

On Wednesday,China said it will release industrial metalsincluding copper, aluminum and zinc from its national reserves to curb commodity prices. Copper price has fallen more than 10% from its record high, dipping into correction territory on Tuesday.