US stocks suffered one of their worst days of the year after the Federal Reserve signaled it may reduce interest rate cuts in 2025 compared to earlier expectations. The S&P 500, Dow Jones, and Nasdaq all experienced significant losses, driven by concerns over a less aggressive easing of monetary policy. The Fed, while continuing its rate reduction trajectory, projected only two further cuts in 2025, down from previous estimates of four. Chair Jerome Powell attributed the shift to a robust job market and rising inflation, emphasizing the need for a data-dependent approach.
Specialist Meric Greenbaum works on the floor of the New York Stock Exchange as the rate decision of the Federal Reserve is announced on Wednesday, Dec. 18, 2024.
The bigger question centers on how much more the Fed will cut next year. A lot is riding on it, particularly after expectations for a series of cuts in 2025 helped the US stock market set an all-time high 57 times so far in 2024. While lower rates can goose the economy by making it cheaper to borrow and boosting prices for investments, they can also offer more fuel for inflation.
The reduced expectations for 2025 rate cuts sent Treasury yields rising in the bond market, squeezing the stock market. Elsewhere on Wall Street, General Mills dropped 3.1 percent despite reporting a stronger profit for the latest quarter than expected. The maker of Progresso soups and Cheerios said it will increase its investments in brands to help them grow, which pushed it to cut its forecast for profit this fiscal year.
Federal Reserve Interest Rates Stock Market Economy Inflation
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