U.S. stocks plummeted in one of their worst days of the year after the Federal Reserve forecast Wednesday it may deliver fewer shots of adrenaline for the economy in 2025 than it had earlier projected. The S&P 500 fell 178 points, or 3%, pulling it further from its all-time high set a couple weeks ago. The Dow Jones Industrial Average lost 1,123 points, or 2.6%, while the Nasdaq composite dropped 3.6%.
The Fed said Wednesday it's cutting its benchmark interest rate for a third time this year, continuing the sharp turnaround begun in September when it started lowering rates from a two-decade high to support the job market. Wall Street loves lower interest rates, but the Dec. 18 cut had been widely expected by Wall Street.Why is the stock market down today?Investors were unsettled by the Fed's forecast for fewer cuts in 2025, even though many economists had already been paring their expectations given sticky inflation. 'Markets have a really bad of habit of overreacting to Fed policy moves,' Jamie Cox, managing partner for Harris Financial Group, said in an analyst note. '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 bigger question centers on how much more the Fed could cut next year. A lot is riding on it, particularly after expectations for a series of cuts in 2025 helped the U.S. stock market set an all-time high 57 times so far in 2024.Fed officials released projections on Wednesday showing the median expectation among them is for two more cuts to the federal funds rate in 2025, or half a percentage point's worth. That's down from the four cuts they had expected just three months ago. 'We are in a new phase of the process,' Fed Chair Jerome Powell said. The central bank has already quickly eased its main interest rate by a full percentage point, to a range of 4.25% to 4.50%, since September
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