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The Federal Reserve's signal of a quicker shift to slower pace rate cuts in 2025 than investors had expected sent U.S. stocks plummeting Wednesday. The S&P 500 fell 2.9%, sliding to one of its steepest slides this year, and the Dow Jones Industrial Average fell 2.6%, giving up 1,123 points. The Nasdaq composite of tech-heavy stocks fell 3.6%.
The Federal Reserve slashed interest rates by its third cut of the year, bringing the federal funds rate to 4.25 percent to 4.5 percent. This wasn't the most surprising move, but markets took issue with the Fed's updated projections, which would see it only cut rates by two more times in 2025, down from four prior.
The revised outlook comes as Fed Chair Jerome Powell noted that economic conditions make a resilient job market and higher inflation readings sound, even though he tempered expectations by noting some economic uncertainties. Powell likened the situation to automotive driving through fog: 'When the path is uncertain you go a little slower.'
Lower interest rates will facilitate economic action by reducing borrowing costs and raising asset prices. But they could also fuel inflation too. Powell acknowledged there are "inflational pressures," particularly given that there will be a new administration to govern in 2025.
Wednesday's decision was all but unanimous, with Cleveland Fed President Beth Hammack the sole dissenter who argued that inflation puts her in opposition to the rate cut.
The Federal Reserve's more cautious outlook is reining in the market, which earlier this year saw record highs as it expected big rate cuts.
This article first appeared on GuruFocus.