On Wednesday, Wall Street stocks experienced a slight decline following the Federal Reserve’s announcement of a half-percentage-point interest rate cut. The central bank’s chair, Jerome Powell, assured a “careful” approach to lowering rates, acknowledging the progress made in combating inflation in the United States.
The Federal Reserve’s decision was supported by an 11-to-1 vote in favor of reducing the benchmark rate to a range between 4.75 percent and 5.00 percent.The larger-than-expected rate cut surprised some analysts who had anticipated a quarter-point decrease. Additionally, policymakers projected an extra half-point of cuts by the end of this year and a further percentage point of cuts in 2025.
Meanwhile, major US stock indices fluctuated between positive and negative territory following the Fed’s decision. The Dow Jones Industrial Average fell 103.08 points, or 0.25%, to 41,503.10, the S&P 500 lost 16.32 points, or 0.29%, to 5,618.26 and the Nasdaq Composite lost 54.76 points, or 0.31%, to 17,573.30. Briefing.com noted that the Fed’s decision would be met “with both elation and criticism,” as the larger rate cut could appease those who believe the Fed is lagging in preventing a hard landing. However, it may also face criticism from those who think the more aggressive rate cut was unwarranted given broader economic trends, with concerns that it could reignite inflation.
During a news conference, Powell described the US economy as being in “good shape,” highlighting lower inflation and robust growth. He emphasized the Fed’s desire to maintain a strong labor market. The decision to implement a larger rate cut was based on various economic data points, leading policymakers to conclude that monetary decisions had been “appropriately restrictive” and that a “more neutral” approach was now necessary. Powell signaled that investors should expect more interest rate cuts in the future but cautioned that the central bank would proceed carefully and evaluate the matter “meeting by meeting.”
In Europe, stock markets in Paris and London closed lower, while Frankfurt ended the day flat. The dollar initially experienced a significant drop against the euro and other currencies but later recovered. The Fed now anticipates only a half-percentage point of cuts remaining in 2024, which is lower than the three-quarter percentage point that traders had been expecting. Traders are now focusing on the upcoming announcement by the Bank of England on Thursday. The central bank is expected to maintain its current stance following a regular meeting, as official data released on Wednesday showed that British annual inflation remained at 2.2 percent in August.
(With inputs from agencies)