US stocks tumble as Fed eyes fewer 2025 rate cuts, Dow down 2.6%

NEW YORK – Wall Street stocks tumbled on Dec 18 after the Federal Reserve lowered interest rates but also slashed the number of 2025 rate cuts in its forecast.

All three major indices finished firmly lower after the Fed projected just two interest rate cuts in 2025, down from four.

The Dow slid 2.6 per cent, or more than 1,100 points, to 42,326.87.

The broad-based S&P 500 dropped 3 per cent to 5,872.16, while the tech-rich Nasdaq Composite Index slumped 3.6 per cent to 19,392.69.

“Seeing the kind of decline we are experiencing right now indicates that the Fed took the market quite by surprise,” said CFRA Research’s Mr Sam Stovall.

Although stocks often enjoy a late-year bounce referred to as the “Santa Claus rally”, Mr Stovall said the depth of the Dec 18 drop could spur more selling if traders take profits.

“Maybe Santa is already on vacation,” he added.

The US central bank, as expected, moved ahead with a decision to reduce interest rates by a quarter point as Fed chair Jerome Powell offered an upbeat appraisal of the US economy.

But the announcement was coupled with the altered outlook on 2025 monetary policy.

After the latest interest rate cut, the Fed is now “significantly closer” to the point where no further cuts will be needed, said Mr Powell, who emphasised the central bank still views 2 per cent inflation as a critical long-term priority.

In the last couple of months, the Fed’s favoured inflation measure has ticked higher, moving away from the bank’s long-term target of 2 per cent.

Wall Street’s reaction suggests the investors are “grappling” with the likelihood that interest rates “for all intents and purposes, are going to remain higher for longer”, Briefing.com said.

Dec 18’s losses were broad-based with 29 of 30 companies in the Dow ending lower and all 11 sectors in the S&P 500 finishing in the red. AFP