On Wednesday, US Federal Reserve cuts interest rate by 0.25 %, impacting economy and financial market.
Federal Reserve’s Announcement
Feds decided to cut interest rate by 0.25 % bringing it between a range of 4.25-4.50. It further surprised markets by indicating that only 2 additional cut rates will be made in 2025, compared to the 4 cuts forecasted in September.
Fed’s Chairman Jerome Powell stated that the cuts are made while keeping in mind there target of achieving 2% inflation, he says that inflation has reduced significantly. Jerome Powell is focusing on creating an economy with booming employment sector along with absence of inflation.
How Did Market Reacted To The Decision ?
Fed’s careful perspective didn’t go hand in hand with the financial sector, causing a drastic sell-off in the stock market.
Market Decline on Wednesday ?
- Dow Jones Industrial Average fell by 2.58% i.e 1,123 points, noting its 10th continuous loss, greatest losing streak since 1974.
- S&P 500 fell by 2.95%
- Nasdaq Composite sank by 3.56%
Lower the interest rate faster the relief from high cost borrowings from banks, but this hope of Investors was shattered by Feds decision to cut future interest rates at a slower pace. Due to 10-year treasury yield i.e interest rate reaching above 4.50%, there’s been a negative impact in the market.
Market Recovery On Thursday ?
- Dow Jones Industrial gaining 174 points.
- S&p 500 and Nasdaq Composite recording small gains.
- Nvidia rebounded 2%, Artificial Intelligence stocks.
- Volatility Index (VIX) aka Wall Street’s “fear gauge” fell over 23%.
- JPMorgan Chase, Bank of America and other financial sectors recovered some positive gains.
- Micron Technology stocks plunged by 17%, marking its worst days since 2020.
Economic and Political Situation
According to Fed’s forecast there has been a significant growth in economy than expected, with 2.5% recorded in 2024 and 2.1% growth expected in 2025. Inflation rate is also expected to fell down to 2.5% in 2025, though still exceeding there goal of 2% which is expected 2027. According to Powell, unemployment rate might increase 4.3%.
Feds upcoming policies might alter according to upcoming presidency of Donald Trump in 2025. Trumps policies might include possible tariffs and immigration measures which could put a halt on economic growth.
