On Wednesday, Wall Street dipped while the dollar appreciated following the anticipated rate cut from the U.S. Federal Reserve, which indicated a slower pace of future cuts in the upcoming year.
The news led benchmark Treasury yields to increase, and the Dow reversed its earlier gains, putting it on track for its tenth straight daily decline, marking its longest losing streak since 1974.
As anticipated, the Federal Open Market Committee (FOMC) lowered the Fed funds target rate by 25 basis points as it wrapped up its final policy meeting for 2024.
However, the central bank also lowered its forecast for the number of rate cuts expected next year. Policymakers now foresee two interest rate reductions by the end of 2025, down from four anticipated in September, and hinted at a potential pause in January.
“The Fed didn’t surprise anyone, right? They made the expected cut, and they’re hinting at fewer decreases next year and into 2026,” stated Ryan Detrick, chief market strategist at Carson Group in Omaha. “The market was hoping for a slightly more dovish tone in the statement, but that didn’t happen.”
During his subsequent press briefing, Fed Chair Jerome Powell reassured that the economy is robust, inflation is nearing the 2% target, and monetary policy is adequately equipped to tackle emerging risks.
“Remember, reactions are often hasty on Fed Day, but rationality usually returns the next day,” Detrick noted. “The fact remains that we have a strong economy and a Fed that isn’t looking to raise rates anytime soon. There are likely future cuts, but they will probably arrive a bit later in 2025.
The Dow Jones Industrial Average (.DJI) declined by 393.11 points, or 0.90%, to 43,056.79; the S&P 500 (.SPX) dropped 65.07 points, or 1.08%, to 5,985.54; and the Nasdaq Composite (.IXIC) fell 257.77 points, or 1.28%, to 19,851.29.
European stocks ended slightly higher, lifted by technology companies and French automaker Renault (RENA.PA), though gains were limited ahead of the Fed’s rate announcement.
MSCI’s worldwide stock gauge (.MIWD00000PUS) fell by 8.93 points, or 1.03%, to 855.09.
The STOXX 600 (.STOXX) index increased by 0.15%, while the broader FTSEurofirst 300 index (.FTEU3) rose by 2.56 points, or 0.13%.
Emerging market stocks (.MSCIEF) decreased by 0.39 points, or 0.04%, reaching 1,092.81. MSCI’s widest index of Asia-Pacific shares outside Japan (.MIAPJ0000PUS) closed down by 0.05%, at 579.42, and Japan’s Nikkei (.N225) dropped 282.97 points, or 0.72%, to 39,081.71.
Yields on 10-year U.S. Treasuries increased after the Fed’s decision.
The yield on benchmark U.S. 10-year notes increased by 8.7 basis points to 4.472%, up from 4.385% on Tuesday.
The yield on 30-year bonds rose by 6.2 basis points to 4.6406%, up from 4.579% late Tuesday.
The 2-year note yield, which generally aligns with interest rate expectations for the Federal Reserve, climbed 8.8 basis points to 4.329%, from 4.241% on Tuesday.
The dollar furthered its gains against a selection of global currencies as investors processed the Fed’s updated outlook.
The dollar index, which measures the currency against a collection of others including the yen and euro, gained 1% to 108.01, with the euro down 1.07% to $1.038.
In comparison to the Japanese yen, the dollar appreciated by 0.69% to 154.54.
Bitcoin retraced from its record highs after previously surging following U.S. President-elect Donald Trump’s remarks regarding establishing a strategic bitcoin reserve.
Bitcoin fell by 3.13% to $103,105.00. Ethereum decreased by 3.35% to $3,804.50.
Oil prices trimmed their increases but closed higher in response to the Fed’s decision.
U.S. crude rose by 0.71% to finish at $70.58 per barrel, while Brent concluded at $73.39 per barrel, marking a 0.27% rise for the day.
Gold continued its downward trend following the U.S. central bank’s announcement regarding a deceleration in interest rate actions for 2025.
Spot gold declined by 1.32% to $2,610.75 an ounce. U.S. gold futures dropped by 1.38% to $2,608.00 an ounce.
