Why the inventory market was disappointed with the Fed on Wednesday
The Federal Reserve met market expectations on Wednesday, however traders ended up disappointed. The central financial institution minimize rates of interest by 1 / 4 level, leaving the goal vary between 4.25% and 4.5%. However, projections for 2025 precipitated concern.
He “dot diagram” of the Fed, which reflects the future expectations of those responsible for monetary policy, indicated only two additional cuts by 2025less than the four expected in September.
This perspective restrictive It worried investors. They fear that persistent inflation above 2% and strong economic growth could limit future rate cuts or even force additional tightening.
Market drop after the announcement
After the announcement, shares fell significantly. He Dow Jones lost more than 1,100 points, marking 10 consecutive days downsomething that has not happened since 1974. In percentage terms, the S&P 500 fell by 3.0%, while the Nasdaq fell 3.6%.
Below are analyst comments on the Fed’s decision:
David Russell, TradeStation
“Goodbye to the party. No Christmas cheer from the Fed. Projections show higher inflation and lower unemployment in 2024. It is logical to pause now, but attention shifts from the monetary to the fiscal sphere. The future of the economy now depends on the next government.”
Steve Wyett, BOK Financial
“It is a nuanced position. Reducing rate cuts lengthens the path to the 2% target. Employment stability contrasts with continued growth, raising questions about what the ‘neutral’ level is. The Fed seems to want to be cautious, but this could be a risk for the labor market.”
Byron Anderson, Laffer Tengler Investments
“Powell behaves like a helicopter parent with the economy. Inflation and unemployment are stable, but the Fed continues to cut rates. The pause should have come after Trump’s election to evaluate its impact. This could force the Fed to reverse policies and lose credibility.”
Seema Shah, Principal Asset Management
“The rate cut was not a surprise, but reviews suggest it was a reluctant move. “The Fed seeks comfort in markets as it prepares a more restrictive approach for 2025.”
Jack McIntyre, Brandywine Global
“The decision, along with future guidance, represents a ‘restrictive’ cut. The combination of higher expected growth and anticipated inflation limited cuts to 2025. This marks a pause phase with uncertainty, which will increase volatility in the markets.”
Uncertainty on the horizon
Markets now assess a 38% likelihood that charges will stay between 4.0% and 4.25% by the top of 2025based on the CME FedWatch Tool, reflecting uncertainty concerning the Fed’s future choices, in a context of average financial progress, persistent inflation and volatility in monetary markets and potential surprising changes.
