Stocks Fall as Federal Reserve Adjusts Rate-Cut Strategy
US stock markets faced sharp declines after the Federal Reserve reduced interest rates for the third consecutive time but signaled a slower pace of cuts in 2025. The central bank adjusted its lending rate to a range of 4.25% to 4.5%, citing progress in price stabilization while acknowledging lingering inflation risks.
Chairman Jerome Powell emphasized caution in a press conference:
“From this point forward, it’s appropriate to move cautiously and look for progress on inflation.”
The Federal Reserve’s projections indicate the key lending rate will fall to 3.9% by the end of 2025, higher than the 3.4% predicted earlier.
Stock Market Reaction to Federal Reserve Announcements
The markets reacted strongly:
- Dow Jones Industrial Average dropped 2.58%, marking its longest losing streak since 1974.
- S&P 500 and Nasdaq Composite fell by nearly 3% and 3.6%, respectively.
Asian markets mirrored the downward trend, with Japan’s Nikkei 225 and Hong Kong’s Hang Seng falling 1.2% and 1.1% during Thursday’s trading.
Analysts have warned that inflation pressures, including President-elect Donald Trump’s proposed tax cuts and import tariffs, could exacerbate price increases.
Economic Implications of Rate Adjustments
Although the job market shows signs of resilience, inflation remains elevated at 2.7% in November, above the Federal Reserve’s 2% target. Economists, such as Olu Sonola from Fitch Ratings, see the latest cut as signaling a potential pause in rate adjustments amid White House policy uncertainties.
“The economy looks strong… What’s the rush?” commented John Ryding, chief economic advisor at Brean Capital.
Global Perspective on Rate Decisions
The Federal Reserve’s move comes as the Bank of England prepares to announce its own decision. The UK’s benchmark rate is expected to hold steady at 4.75%, as inflation concerns persist. Unlike the Fed, the Bank of England does not consider unemployment in its mandate, allowing it to focus solely on inflation control.
Economist Monica George Michail pointed out key differences:
“The Bank [of England] is being more of a prudent central bank than the Fed is right now.”
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