Stocks Decline Amid Diminishing Rate Cut Expectations
Stocks dropped on Thursday as hopes for a December interest rate cut seemed to fade away.
The S&P 500 Index ended the day down 1.6%, while the Nasdaq Composite Index fell by 2.3%. The Russell 2000 Index saw a decline of 2.9%. Additionally, the Dow Jones Industrial Average dropped 797 points after reaching a record high the previous day.
The tech sector experienced significant losses, with Dell Technologies’ stock declining 4.8%, Nvidia falling 3.8%, and Palantir dropping 6.5%.
Despite the downturn, the Dow, S&P, and Nasdaq have shown strong performance this year, still up by double-digit percentages. The Russell, which tracks smaller companies, has increased by nearly 7% in 2025.
Current market speculation suggests a probability of less than 50% regarding a rate cut at the Fed’s next meeting, a stark decrease from over 90% just two weeks prior. This shift followed Fed Chairman Jerome Powell’s comments on October 29, indicating that “further cuts in interest rates at the December meeting are not a foregone conclusion.”
Recently, there has been a notable split among Fed officials concerning the desire for additional rate cuts.
Figures like Federal Reserve Presidents Lisa Cook and Philip Jefferson, along with Presidents Albert Moussalem and Austan Goolsby, have adopted cautious positions, hinting they may prefer to pause any cuts. This also suggests that should a reduction occur, it might only be a modest quarter-point cut.
Furthermore, Boston Fed President Susan Collins and Kansas City Fed President Jeffrey Schmidt have voiced similar sentiments, leaning towards supporting a moratorium on cuts.
Collins remarked, “I think there are several reasons why the bar for further easing is relatively high in the short term,” during a statement this past Wednesday.
Evercore ISI analyst Krishna Guha noted that Collins’ comments increase worries about Powell’s ability to manage disagreements within the FOMC and complicate the outlook for interest rates.
This sentiment seems to overshadow voices advocating for further cuts.
Trustees Michelle Bowman and Christopher Waller, alongside newly appointed Trustee Stephen Millan, continue to support the idea of cutting rates despite recent hesitations. It’s worth mentioning that Millan is currently on unpaid leave from his position on President Donald Trump’s White House Council of Economic Advisers.
The ongoing government shutdown has also muddied the waters by preventing the release of crucial official data.
Powell illustrated this uncertainty by comparing the lack of timely data to “descending fog”: “What do you do if you’re driving in fog? You’re going to slow down.”
Due to the shutdown, the most recent employment figures and inflation data have yet to be made public.
“These developments challenge our confidence that the Fed will cut rates in December,” Guha commented.
The White House announced on Wednesday that the September jobs report will be published once the government reopens, though the October report may not be available.
Economists largely predict that October inflation data will similarly be unavailable due to insufficient government personnel to gather the necessary information.
