US stocks sank to their second-worst loss of the year Wednesday after the Federal Reserve signaled that it may deliver fewer interest rate cuts in 2025 than earlier thought.
- The S&P 500 fell 178.45 points, or 2.9%, to 5,872.16, pulling further from its all-time high set a couple of weeks ago.
- The Dow Jones Industrial Average fell 1,123.03 points, or 2.6%, to 42,326.87, extending its longest losing streak in 46 years.
- The Nasdaq composite fell 716.37 points, or 3.6%, to 19,392.69.
Fed officials released projections showing they're penciling in just two cuts to interest rates next year, instead of the four they were projecting a few months ago. Treasury yields ramped higher to add pressure on the stock market, the
AP reports.
The Fed said Wednesday it's cutting its main interest rate for a third time this year, continuing the sharp turnaround that began in September when it started lowering rates from a two-decade high to support the job market. That cut, though, was widely expected. 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 at least 57 times in 2024. Fed officials released projections on Wednesday showing the median expectation among them is for two more cuts to the federal funds rate in 2025, or half a percentage point's worth. That's down from the four cuts expected just three months ago.
Powell said some Fed officials, but not all, are also trying to incorporate uncertainties inherent in a new administration coming into the White House. Worries are rising along Wall Street that President-elect Trump's preference for tariffs and other policies could further spur inflation, along with economic growth. "When the path is uncertain, you go a little slower," Powell said. It's "not unlike driving on a foggy night or walking into a dark room full of furniture. You just slow down."
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On Wall Street, stocks of companies that can feel the most pressure from higher interest rates fell to some of the worst losses. Real-estate owners in the S&P 500 fell 3.6%, for example, for one of the largest losses among the 11 sectors that make up the index. Stocks of smaller companies also did poorly. Many need to borrow to fuel their growth, making them potentially more vulnerable to higher interest rates, and the Russell 2000 index of small-cap stocks fell 4.4%. On the winning end of Wall Street, Jabil jumped 7.3% to help lead the market after reporting stronger profit and revenue for the latest quarter than analysts expected.
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