The Fed cuts interest rates by 0.25 percentage points and Wall Street closes in the red after the announcement
The Dow Jones lost 2.58%, the technological Nasdaq 3.56% and the S&P 500 2.95%. Analysts point out that the drop results from the Federal Reserve's extreme caution.
Jerome Powell, chairman of the Fed, in a file photo.
Stock indexes suffered a sharp drop after the Federal Reserve announced its third consecutive interest rate cut.
As markets anticipated, the Fed cut interest rates by 0.25 percentage points, leaving them at 4.25-4.50%. However, it also announced that far fewer cuts are planned for 2025, which triggered a plunge in the New York stock market.
By the end of the day, the Dow Jones lost 2.58%, the tech-heavy Nasdaq 3.56% and the S&P 500 2.95%. Analysts point out that the drop is due to the Fed's extreme caution, as until hours ago, the markets were forecasting four benchmark rate cuts in 2025, and, in the end, it will be only two.
In September, when the Fed published its latest economic projections, four rate cuts were expected by 2025 and inflation was within the margins for rate cuts.
Now, the Fed is anticipating fewer cuts and inflation of 2.5% in 2025, which could be higher than forecast in September, when it predicted price increases would slow to 2.1% next year.
"From here, it's a new phase, and we're going to be cautious about further cuts," warned Fed Chairman Jerome Powell in a press conference. "The slower pace of cuts for next year reflects the higher inflation readings we've had this year."
In addition to the drop in stock indexes, the yield on two-year U.S. Treasury bonds rose to 4.34%, up from 4.24% at the close of trading on Tuesday.
Although the rate cuts are good news today for Americans with credit card balances and other debt, analysts agree that markets reacted negatively today to what they see as a complex near-term outlook, despite the fact that since September, the Fed's rate cuts reached one percentage point.
"The market is forward-looking and ignored the good news of today's rate cut and instead focused on the paucity of rate cuts for next year," Chris Zaccarelli, chief investment officer at Northlight Asset Management, told CBS News. "[T]he market was underwhelmed by the likely future path of interest rates."
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