Jacquelyn Martin/AP
The Federal Reserve cut its benchmark interest rate on Wednesday to a range of 4.25% to 4.5%, bringing its decline since mid-September to 100 basis points.
Wall Street usually celebrates rate cuts as lowering borrowing costs drives spending, investing, and hiring. Reducing rates also signals inflation is under control, and makes risk assets like stocks relatively more attractive by trimming yields on safer assets like Treasuries.
Yet stocks tanked because Fed officials projected two cuts next year, down from four previously. Fed Chair Jerome Powell also said the central bank expects to ease its monetary policy more slowly in the months ahead.
Here's a roundup of how analysts, economists, strategists, investors, and other experts reacted to the latest Fed decision in their morning research Thursday.
"US markets played the part of Scrooge on Wednesday, tumbling as the Federal Reserve's hawkish tone dampened holiday cheer.
Investors should see this as a healthy spot of profit-taking rather than an end to the party, after what's been a fantastic run for markets since the US election."
"Markets are normally good at reading the signs, but the sell-off on Wall Street last night would suggest investors had started on the Christmas sherry a bit early and were caught out by the Fed's announcement about where rates might go in 2025.
The 3% drop in the S&P 500 is a wake-up call that US markets are not a one-way ticket to the moon.
The fact futures prices are showing a rebound in the main US equities on Thursday would suggest we are not at the start of a full-blown market correction. Instead, it's more likely that investors are now sitting up and paying more attention to what could go wrong, rather than only focusing on the positives. That's long overdue and a healthy development."
"This is a Fed that really has no faith in its view at any time and is willingly reactive as opposed to proactive even though its actions affect the economy with long lags.
You would have thought that between the commentary and forecast changes that the world has changed dramatically since the jumbo rate cut just three months ago. It clearly does not take much to cause this Fed to swing its view around. I can guarantee that it will shift again."
"'We had a year-end inflation forecast, and it's kind of fallen apart.'
Not exactly the confidence-inspiring line you'd expect from a Fed chair. But Jerome Powell's performance at yesterday's press conference wasn't his finest hour. In what might have been the most uncomfortable showing of his tenure, Powell ceded the stage to the hawks, visibly strained as he tried to sell a strategy he didn't fully appear to endorse.
Powell flagged inflation 'moving sideways' and 'higher uncertainty' around its trajectory. These admissions reveal a central bank increasingly unsure of its footing, with rates markets now expecting just one cut for 2025 (as we do), and with no real consensus on when that final cut would arrive."
"Markets have a really bad of habit of overreacting to Fed policy moves. The Fed didn't do or say anything that deviated from what the market expected — this seems more like, I'm leaving for Christmas break, so I'll sell and start up next year.
The good news is that this 10-day sell-off should lay the path for a Santa Rally leading into next week."
"Santa came early and dropped a 25-bps rate cut in the market's stocking but accompanied it with a note saying that there would be coal next year."
The market is forward-looking and ignored the good news of today's rate cut and instead focused on the paucity of rate cuts for next year."
"What was heard last night from the Fed as an accompaniment to the interest rate cut is a showstopper for the stock market.
The Fed is sending a clear signal that it has almost completed the phase of interest rate cuts. The year 2025 will be a significant break in the Fed's rate-cutting cycle.
The Trump blessing could quickly turn into a curse. If the market expects yields to rise further, it is unlikely that the Fed will intervene against these forces. If inflation data continues to rise in January and February, then that could be it for the interest rate cuts."
"While the Fed is taking all the heat for today's sell-off, a reality check from overbought conditions, deteriorating market breadth, and rising rates was arguably overdue.
Overall, today's FOMC meeting brought back some unwanted clouds of uncertainty over monetary policy next year. At a minimum, market expectations have shifted toward a shallower- and slower-than-anticipated rate-cutting cycle. Technically, the near-term risk remains to the upside for 10-year Treasury yields, creating a likely headwind for stocks."
"The Fed has poured cold water on already dwindling market hopes for generous rate cuts in 2025.
Given the risk of resurging inflation from potential trade tariffs and a slowdown in immigration that has been cooling pressure in the labor market, market expectations of only two more cuts in 2025 now seem reasonable.
We expected this policy outcome, so it doesn't change our recently upgraded view on US equities. US stocks can still benefit from AI and other mega forces, from robust economic growth and from broad earnings growth — and we see them outperforming international peers in 2025."
"With an economy that's going gangbusters and an incoming president with a fiscally loose agenda, you wonder why the Fed felt it necessary to cut.
Is this to curry favor with the incoming administration or is there a bump in the road the Fed can see that the rest of us are missing."
"The FOMC delivered about as hawkish a cut as they could muster up yesterday, and market participants were not particularly pleased about what they heard.
It was, though, a little perplexing to see such a violent market reaction to Powell's remarks, particularly considering how 'every man and his dog' had been expecting this sort of a pivot in the run up to the meeting.
It feels, though, as if markets have overreacted to Powell's message, and that we may have reached something of a hawkish extreme here
Consequently, I'd be a dip buyer of equities here, as strong earnings and economic growth should see the path of least resistance continuing to lead to the upside, offsetting the fading impact of the 'Fed Put.'"
