Waning enthusiasm for rate cuts at the Federal Reserve jarred US markets Wednesday, sending stocks lower and pushing Treasury yields and the dollar sharply higher. It was the worst loss for the S&P 500 on the day of a rate decision since 2001. The S&P 500 fell below the 6,000 level, suffering its worst session since August. The tech-heavy Nasdaq 100 dropped 3.6%, the most in five months. Micron Technology Inc. fell 14% after hours after reporting earnings.
The policy-sensitive two-year US Treasury yield surged 10 basis points to 4.35% and the 10-year rate rose to a level last seen in May. Bloomberg’s gauge of the dollar jumped to its highest since November 2022. While Jerome Powell delivered a widely expected quarter-point rate cut following a meeting of the Federal Open Market Committee, the central bank signaled increasing wariness around inflation, including a reduction in how far members expect easing to go in 2025. Powell reemphasized that the central bank would be more cautious as it considers further adjustments to the policy rate and said the Fed is committed to reaching its 2% target. “We need to see progress on inflation,” Powell said. “That is how we are thinking about it. It is kind of a new thing. We moved quickly to get to here but moving forward we are moving slower.” The velocity of Wednesday’s drop befit the speed with which the Fed pivoted back to an inflation-leery emphasis. Before the latest session, the S&P 500 had surged more than 10% since the FOMC’s July 31 rate decision, at which the central bank dropped its one-sided risk assessment and said keeping the labor market expanding had become a bigger priority. Max Gokhman, senior vice president at Franklin Templeton Investment Solutions, called Powell “a hawk in dove’s clothing”