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The Dow Jones fell 1,100 points or 2.6% to mark its worst day since August and extend its slide for the 11th day running. This is the longest losing streak for the index since 1974.
This was also only the second instance in 2024 that the 30-stock index fell 1,000 points or more in a session.
While the S&P 500 shed 3% to fall below 6,000, the Nasdaq shed 3.6% to close well below the 20,000 mark. This was the worst Fed policy day for the S&P 500 since 2001.
On one hand, the Fed did cut interest rates by 25 basis points on expected lines, but said that it will now cut rates only twice in 2025 compared to four given in its previous forecast.
“We need to see progress on inflation,” Powell said. “That is how we are thinking about it. It is kind of a new thing. We moved quickly to get to here but moving forward we are moving slower.”
The policy-sensitive two-year US Treasury yield surged 10 basis points to 4.35% and the 10-year rate rose to a level last seen in May. Bloomberg’s gauge of the dollar jumped to its highest since November 2022.
In Wednesday’s briefing, the chair also said some policymakers had begun to incorporate into their forecasts the potential impact of higher tariffs that President-elect Donald Trump may implement. But he said the impact of such policy proposals was at this point highly uncertain.
Max Gokhman, senior vice president at Franklin Templeton Investment Solutions, called Powell “a hawk in dove’s clothing.”
“Despite playing down the recent slowdown in disinflation while boasting about the strength of economic momentum, he still hinted that tariffs won’t be written off as transitory and that the two-cut forecast for 2025 is necessary because policy must remain restrictive,” he said.
Whitney Watson of Goldman Sachs Asset Management expects the Fed to skip a rate cut in January before resuming on its easing path in March.
“While the Fed opted to round out the year with a third consecutive cut, its New Year’s resolution appears to be for a more gradual pace of easing,” Watson, global co-head and co-chief investment officer of fixed income and liquidity solutions at the firm, said.
(With Inputs From Agencies.)
