U.S. Stocks Fall, Dow Tumbles As Fed Signals Fewer Rate Cuts In 2025

U.S. stocks suffered one of their worst days of the year after the Federal Reserve indicated that it may deliver fewer rate cuts in 2025 than previously anticipated, Stan Choe reported for the Associated Press.

While Wall Street generally welcomes rate cuts, the recent reduction was widely anticipated and already factored into market expectations. I Photo: New York Stock Exchange Facebook

The S&P 500 dropped 2.9%, nearing its biggest loss of the year, pulling further away from the all-time high it reached just weeks ago. The Dow Jones Industrial Average fell by 1,123 points, or 2.6%, while the Nasdaq Composite tumbled 3.6%.

The Federal Reserve announced its third interest rate cut of the year, continuing a dramatic policy shift since September when it began lowering rates from a two-decade high to support the labor market.

While Wall Street generally welcomes rate cuts, the recent reduction was widely anticipated and already factored into market expectations.

The greater focus, however, was on the Fed's outlook for 2025.

Projections released by Fed officials revealed a median expectation for just two additional cuts to the federal funds rate next year—a total of 0.5 percentage points—down from four cuts expected in projections from three months ago.

“A lot is riding on the Fed’s decisions next year, especially after optimism about 2025 rate cuts helped propel the stock market to 57 record highs this year,” said one analyst. Fed Chair Jerome Powell acknowledged the shift, stating, “We are in a new phase of the process.”

Since September, the Fed has reduced its main interest rate by a full percentage point, bringing it to a range of 4.25% to 4.50%, but Powell's comments suggested the pace of cuts will likely slow in the coming year.