(Bloomberg) — The Federal Reserve rattled U.S. markets on Wednesday, pushing stocks lower and Treasury yields soaring, after forecasting fewer interest rate cuts next year. It was the worst loss for the S&P 500 on the day of a rate decision since 2001.
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The S&P 500 fell below the 6,000 level, suffering its worst session since August. The tech-heavy Nasdaq 100 fell 3.6%, the biggest drop in five months. Micron Technology Inc. fell in post-market trading after reporting earnings.
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The policy-sensitive two-year U.S. Treasury yield rose 10 basis points to 4.35% and the 10-year rate rose to a level last seen in May. The Bloomberg dollar indicator jumped to its highest level since November 2022.
While Jerome Powell delivered a widely expected quarter-point rate cut following a Federal Open Market Committee meeting, the central bank signaled growing caution around inflation, including a reduction in the extent to which members expect easing to arrive in 2025. Powell again emphasized that the central bank would be more cautious in considering further adjustments to the policy rate and said the Fed is committed to meeting its 2% target.
“We need to see progress on inflation,” Powell said. “That’s how we’re thinking about it. It’s something new. “We moved quickly to get here, but we moved slower.”
The speed of Wednesday’s decline corresponded to the speed with which the Federal Reserve returned to a cautious stance against inflation. Going into the latest session, the S&P 500 had risen more than 10% since the FOMC’s July 31 rate decision, in which the central bank abandoned its unilateral risk assessment and said maintaining labor market expansion would be had become a higher priority.
At Wednesday’s briefing, the president also said that some policymakers had begun to factor into their forecasts the potential impact of higher tariffs that President-elect Donald Trump could implement. But he said the impact of such policy proposals was at this time very uncertain.
Max Gokhman, senior vice president at Franklin Templeton Investment Solutions, called Powell “a hawk in dove’s skin.”
“Despite downplaying the recent slowdown in disinflation while boasting about the strength of the economic momentum, he still hinted that the tariffs will not be considered transitory and that the forecast of two cuts by 2025 is necessary because the policy must continue being restrictive,” he said. saying.
The last time the S&P 500 experienced losses of such magnitude on the day of the Federal Reserve decision was on September 17, 2001, when the index fell nearly 5%. It fell 12% on March 16, 2020, a day after the Federal Reserve’s emergency weekend meeting during the pandemic.