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Stocks Tumble as Fed Signals Fewer Rate Cuts, Yields Surge

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FED,Interest Rates,Treasury Yields

U.S. stocks experienced a sharp decline after the Federal Reserve indicated a reduction in planned interest rate cuts for 2025, prompting concerns about rising Treasury yields. The Fed's revised outlook, which now includes only two rate cuts instead of four, sent shockwaves through the market, leading to a sell-off in stocks and a surge in both yields and the dollar. The decision overshadowed the widely anticipated reduction in the benchmark rate for a third consecutive meeting. The central bank also raised its inflation forecast for next year, potentially paving the way for higher interest rates than previously projected. These developments, coupled with anxieties surrounding President-elect Donald Trump's policies and their potential inflationary impact, have injected uncertainty into the market.

The rally in U.S. stocks is encountering a fresh hurdle -- a potentially problematic rise in Treasury yields as the Federal Reserve signals fewer interest rate cuts for 2025.

Stocks have been buoyed by expectations of easier monetary policy and had previously mostly shaken off the steady rise in Treasury yields. But with benchmark yields hitting 4.52% following the Fed meeting, their highest level in over six months, the rate outlook threatens to undermine the momentum for stocks, which are trading at elevated valuations.

The trajectory of monetary policy is closely monitored by investors, as the level of rates influences bond yields and dictates borrowing costs. Investors said that benchmark yields breaching a key 4.5% level could cause turbulence for stocks and benefit lower-risk alternatives.

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