Dow Jones plunges after Fed reduces expectations for interest rate cuts
Date
12/19/2024 7:15:06 AM
(MENAFN) The Stock market took a sharp plunge on Wednesday after the Federal Reserve announced it was scaling back its expectations for interest rate cuts in the coming years. The Dow Jones Industrial Average dropped by about 1,100 points, or 2.5 percent, marking its largest decline since August. This downturn extended the Dow's losing streak to ten consecutive days, the longest since 1974. The broader S&P 500 fell nearly 3 percent, while the Nasdaq, heavily weighted with technology stocks, declined by about 3.5 percent.
While the Fed cut interest rates by a quarter of a percentage point on Wednesday, the market reacted negatively to the central bank’s revised forecast for fewer rate cuts than previously anticipated. The new projection outlines only a half-percentage-point reduction in 2024, followed by another half-point cut in 2026. This is a significant shift from the Fed’s September forecast, which had anticipated a full percentage point of cuts in 2024 and an additional half-point reduction in 2026.
Interest rate cuts are generally seen as beneficial for economic growth over time, as they encourage borrowing and spending, thereby stimulating the economy. Lower rates also tend to boost corporate profits and stock prices. However, the Fed’s decision to slow the pace of cuts has sparked concern among investors, who worry about the potential impact on market conditions and economic growth.
At a press conference in Washington, D.C., on Wednesday, Fed Chair Jerome Powell explained that the central bank’s cautious approach reflects the substantial rate reductions already made. Powell emphasized that the Fed is aiming to proceed prudently, suggesting that further cuts may be implemented more slowly to maintain economic stability. This measured stance has left markets uncertain about the pace of future monetary easing, fueling the sell-off.
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