Stocks in the United States fell to one of their lowest levels this year after the Federal Reserve hinted on Wednesday that it may offer less stimulus to the US economy in 2025 than previously thought.
The S&P 500 fell 2.9%, close to its biggest loss of the year, after hitting an all-time high just two weeks ago. The Dow Jones industrial average lost 1,123 points, or 2.6%, and the Nasdaq fell 3.6%.
The Federal Reserve said on Wednesday it was cutting its key interest rate for the third time this year, continuing a sharp turnaround that began in September, when it began cutting rates from two-decade highs to support the labor market. . Financial markets on Wall Street like easier interest rates, but this modest cut was already widely expected.
The biggest question mark centers on how much more the Federal Reserve will cut interest rates next year. Much depends on this decision, especially since expectations of a series of cuts through 2025 have helped the US stock market set new records 57 times so far in 2024.
Federal Reserve officials released forecasts on Wednesday, showing their average expectation is for two more rate cuts through 2025, or half a percentage point. That's down from the four cuts expected just three months ago.
"We are in a new phase of the process," said Federal Reserve Chairman Jerome Powell. The central bank quickly eased its key interest rate by a full percentage point since September.
Asked why Federal Reserve officials are looking to slow interest rate cuts, Mr. Powell noted that the labor market appears to be doing well overall and that recent inflation indicators have picked up. He also mentioned the uncertainties that will require policymakers to react to the future changes that are expected to define the economy.
While lower rates can affect the economy by making borrowing cheaper and encouraging investment, they can also provide more stimulus to inflation.
Mr. Powell said some, but not all, Federal Reserve officials are also trying to contain the uncertainties inherent with a new administration coming to the White House. Concerns are growing on Wall Street that President-elect Donald Trump's preferences on tariffs and other policies could further fuel inflation, along with economic growth.
"When the road is unsafe, you go a little slower," Mr. Powell said. It's no different than driving on a foggy night, or walking into a dark room full of furniture. You just slow down."
Only one member of the Federal Reserve, Cleveland official Beth Hammack, thinks the Federal Reserve should not have cut interest rates at all this time. Her vote was the only one against Wednesday's decision./Voice of America (A2 Televizion)
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