The U.S. Federal Reserve cut interest rates on Wednesday as expected, but signaled they would cut less in 2025 than originally expected, sending the Dow Jones Industrial Average soaring more than 1,100 points.
The Federal Reserve has cut interest rates by 25 basis points to a range of 4.25% to 4.50%, and the Summary Economic Outlook (SEP) calls for a total rate cut of 0.5 percentage point by the end of 2025, given the strong labor market and recent slowdown. suggested. Contributes to lower inflation.
Policymakers have previously signaled the possibility of four rate cuts next year.
Fed Chairman Jerome Powell said he expected further progress in curbing inflation as policymakers consider a path forward for lowering interest rates, as inflation remains higher than expected at the end of the year.
Inflation is currently 2.7%, above the Fed's 2% target.
“As we consider further rate cuts, we will be looking for progress on inflation,” Powell said in a press conference after two days of meetings, saying inflation is on track to be flat over the 12-month period.
“Going forward, we would expect to see further progress in controlling inflation and maintaining a strong labor market.”
Powell's comments sent the market crashing, with the Dow Jones Industrial Average dropping $1,123.03, or 2.6%, to close at $42,326.87. It was the 10th consecutive day that the blue-chip index ended in the red, the worst decline since 1974.
The S&P 500 Index fell 178.45 points, or 2.95%, to end at 5,872.16, and the Nasdaq Composite Index plummeted 716.37 points, or 3.56%, to 19,392.69.
“Santa came early and announced a 25bp rate cut on market inventories, along with a note that coal is coming next year,” Chris Zaccarelli, chief investment officer at Northlight Asset Management, said in a note. ''
Chairman Powell said he was “a little frustrated” that inflation was taking longer to subside than policymakers expected, but that unemployment and inflation rates were lower than they were just a few years ago. He added that the economy is doing better than many expected.
“When you look at the changes in economic forecast statements, there really was no choice,” said Ellen Hazen, chief market strategist at FL Putnam Investment Management in Wellesley, Massachusetts.
“If you look at all the changes they've made, it's clear that the economy is moving much more vigorously than previously predicted. And that's contributing to their desire to potentially pause. It must be.”
In September, the Federal Reserve announced its first policy since 2020, citing “strength belief” that inflation is calming toward the Fed's 2% target and that a weak job market poses greater risks. implemented a significant 0.5 point interest rate cut. This is the first rate cut since 2020.
The Fed removed the “increasing confidence” language and cut interest rates by a quarter of a point again in November.
The third rate cut came amid mixed economic indicators.
Although inflation appeared to be slowing, the Consumer Price Index showed inflation rose 2.7% in November, marking the second straight month of increases and up from 2.6% in October, according to the Labor Department. exceeded.
Private consumption remained relatively undamaged. The Census Bureau said retail sales rose 0.7% in the month, beating expectations for a 0.6% increase, and the retail sales for October was revised upward from 0.4% to 0.5%.
But a volatile labor market is a cause for concern as President-elect Donald Trump calls for the Fed to cut rates at a faster pace.
Hiring rates and job openings have fallen this year, with job growth tapering and stagnant in key sectors such as manufacturing, business and professional services.
“It appears that early concerns about tariffs may be feeding into the Fed's outlook. Expect fewer rate cuts, slightly higher inflation, and slightly higher unemployment in 2025,” Menomonie, Wisconsin. said Brian Jacobsen, chief economist at Annex Wealth Management in Falls.
“A strong economy allows the Fed to reduce the pace of rate cuts.”
with post wire
