Federal Reserve's Rate Cut Triggers Historic Stock Plunge and Global Market Anxiety
1min read On December 18, the Federal Reserve's announcement of a 25 basis point rate cut led to a dramatic drop in U.S. stocks. At the close, the Dow Jones Industrial Average plummeted over 1,000 points, a 2.58% decline marking ten consecutive days of losses, the longest streak since 1974. The Nasdaq Composite sank more than 700 points, or 3.56%, while the S&P 500 fell 2.95%. This downturn followed the Federal Reserve's decision to lower the target range for the federal funds rate to 4.25%-4.50%.
Federal Reserve Chair Jerome Powell indicated that the current policy stance is noticeably less restrictive, suggesting a more cautious approach in future rate adjustments. Powell addressed inflation expectations and reiterated the Fed's commitment to bringing inflation back to the 2% target, acknowledging it might take a couple of years to achieve this.
The announcement and the FOMC's updated "dot plot" projections suggest a possibly slower pace of rate reductions than previously anticipated. The Fed's forecasts now include two 25 basis point cuts in 2025, down from earlier expectations of four, reflecting a more hawkish outlook amid rising inflation concerns.
The market reacted sharply, with broad-based declines in major tech stocks. Tesla fell more than 8%, Amazon over 4%, Microsoft and Google each losing more than 3%, and Apple dropping over 2%. These declines were echoed in a drop of 2.41% in the NASDAQ China Golden Dragon Index, which tracks U.S.-listed Chinese firms.
The global ripple effects included a lower open for Asia-Pacific markets, with indices in Japan and South Korea declining sharply. Commodities also reacted, with gold and silver suffering significant drops, alongside cryptocurrencies where Bitcoin plunged by over 5%, reflecting broader risk aversion.
The Federal Reserve's firm stance and market expectations for future U.S. interest rate paths indicate an environment of cautious monetary adjustment. As economic data informs future policy moves, investor sentiment remains jittery, with markets sensitive to shifts in Fed communication regarding inflation and economic outlooks.
