{"id":13640,"date":"2024-12-19T00:08:41","date_gmt":"2024-12-19T00:08:41","guid":{"rendered":"https:\/\/infundpros.com\/?p=13640"},"modified":"2024-12-19T00:08:43","modified_gmt":"2024-12-19T00:08:43","slug":"federal-reserve-cuts-rates-but-hawkish-forecast-hits-stocks-and-sends-dollar-jumping","status":"publish","type":"post","link":"https:\/\/infundpros.com\/?p=13640","title":{"rendered":"Federal Reserve cuts rates but \u2018hawkish\u2019 forecast hits stocks and sends dollar jumping"},"content":{"rendered":"<div>\n<p>Stay informed with free updates<\/p>\n<p class=\"article__content-sign-up-topic-description\"><span>Simply sign up to the <!-- -->US interest rates<!-- --> myFT Digest &#8212; delivered directly to your inbox.<\/span><\/p>\n<p><iframe class=\"article__content-sign-up-iframe close\" scrolling=\"no\" id=\"signUpIframe\" data-prev-url=\"\/register\/in-article-sign-up?ft-content-uuid=500f561c-09f1-4e7e-a63c-b2a082ef8b55&amp;concept-id=9577c6d4-b09e-4552-b88f-e52745abe02b\"><\/iframe><\/div>\n<div id=\"article-body\">\n<p>The Federal Reserve cut interest rates by a quarter of a percentage point but signalled a slower pace of easing next year, sending the dollar racing to a two-year high and igniting a sell-off in US stocks.<\/p>\n<p>The Federal Open Market Committee on Wednesday voted to reduce the benchmark rate to 4.25 per cent to 4.5 per cent, its third cut in a row. Cleveland Fed president Beth Hammack casting a dissenting vote, preferring to hold rates steady. <\/p>\n<p>Officials\u2019 projections for rates in 2025 also pointed to fewer cuts than forecast, underscoring policymakers\u2019 concern about lingering inflation. In a sign of those worries, policymakers also raised their inflation forecast for next year. <\/p>\n<p>\u201cThis was an unabashedly hawkish message from the Fed,\u201d said Aditya Bhave, senior US economist at Bank of America, adding that officials\u2019 forecast for two quarter-point rate cuts in 2025, rather than the three expected by some economists, represented a \u201cwholesale shift\u201d. <\/p>\n<p>JPMorgan Chase, one of the biggest players in US bond markets, noted money markets are now pointing to only 0.31 percentage points of cuts in 2025. The bank said that was \u201csignificantly more hawkish\u201d than its forecast of 0.75 percentage points, highlighting the scale of the shift.<\/p>\n<p>Wall Street stocks dropped sharply after the decision, with the S&amp;P 500 sinking nearly 3 per cent and tech-heavy Nasdaq off 3.6 per cent. Many of the biggest winners in a powerful 2024 equities rally pulled back: Elon Musk\u2019s carmaker Tesla fell 8.3 per cent, Facebook parent Meta dropped 3.6 per cent and Amazon gave up 4.6 per cent.<\/p>\n<p>Shares in smaller publicly listed companies, which are considered particularly sensitive to fluctuations in the US economy, sustained a heavy blow, knocking the Russell 2000 down 4.4 per cent. <\/p>\n<p>US government bonds also fell in price, with the policy-sensitive two-year Treasury yield rising 0.11 percentage points to 4.35 per cent. The dollar jumped 1.2 per cent against a basket of six peers to the highest level since November 2022. <\/p>\n<p>The US currency has risen since Donald Trump\u2019s election victory last month on expectations tariffs will cause a fresh jolt of inflation, but Wednesday\u2019s Fed decision \u201cputs more fuel on the fire\u201d, said Mike Pugliese, senior economist at Wells Fargo. <\/p>\n<p>Fed chair Jay Powell said following Wednesday\u2019s cut, the central bank\u2019s policy settings were \u201csignificantly less restrictive\u201d and policymakers could be \u201cmore cautious\u201d as they consider additional easing. The December decision had been a \u201ccloser call\u201d than at previous meetings, he said.<\/p>\n<p>Inflation was moving \u201csideways\u201d, Powell added, while risks to the labour market had \u201cdiminished\u201d.<\/p>\n<p>The Fed\u2019s goal is to apply enough pressure on consumer demand and business activity to push inflation back to the US central bank\u2019s 2 per cent target without harming the jobs market or the economy more broadly. <\/p>\n<p>The core personal consumption expenditures price index, the Fed\u2019s preferred inflation gauge that strips out food and energy prices, rose at an annual rate of 2.8 per cent in October.<\/p>\n<p>Concerns inflation is stalling above 2 per cent contributed to Fed officials projecting half a percentage point worth of cuts in 2025, to 3.75 per cent to 4 per cent. <\/p>\n<p>Powell also said officials had begun to include in their forecasts assumptions about Trump\u2019s planned policies.<\/p>\n<p>Four policymakers pencilled in one or no quarter-point cuts next year. Fed officials had forecast a full percentage point of 2025 rate cuts in the previous \u201cdot plot\u201d, released in September. <\/p>\n<p>Wednesday\u2019s projections showed most officials expect the policy rate to fall to 3.25 per cent to 3.5 per cent by the end of 2026, also higher than their previous forecast.<\/p>\n<p>They also raised their forecasts for core inflation to 2.5 per cent and 2.2 per cent in 2025 and 2026, respectively, and predicted the unemployment rate would steady at 4.3 per cent for the next three years.<\/p>\n<p>The Fed kicked off a rate-cutting cycle in September with a bumper half-point cut, but fears about the labour market have ebbed since then and the economic outlook has brightened. The economy\u2019s resilience in the face of higher borrowing costs has changed the calculus for officials as they try to find a \u201cneutral\u201d rate that neither constrains growth nor drives it too high.<\/p>\n<p>The central bank has described recent cuts as a \u201crecalibration\u201d of monetary policy that reflects its success in knocking inflation from a peak of about 7 per cent in 2022. <\/p>\n<p>Powell on Wednesday said the Fed was in a \u201cnew phase in the process\u201d, as borrowing costs close in on the neutral rate.<\/p>\n<p>Fed officials raised that estimate for the neutral rate again, with a majority now putting it at 3 per cent, up from 2.5 per cent a year ago.<\/p>\n<p>The Fed meeting came just weeks before Trump returns to the White House, having vowed to raise tariffs, deport immigrants and slash taxes and regulations. Economists recently polled by the Financial Times said the policy combination could trigger a new bout of higher inflation and hit growth.<\/p>\n<p><em>Additional reporting by Eva Xiao in New York<\/em><\/p>\n<\/div>\n<p>Read the full article <a href=\"https:\/\/www.ft.com\/content\/500f561c-09f1-4e7e-a63c-b2a082ef8b55\" target=\"_blank\" rel=\"noopener\" rel=\"nofollow\">here<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"<p>Stay informed with free updates Simply sign up to the US interest rates myFT Digest &#8212; delivered directly to your inbox. The&#8230;<\/p>\n","protected":false},"author":1,"featured_media":13641,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[22],"tags":[],"class_list":{"0":"post-13640","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-business"},"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v21.3 - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>Federal Reserve cuts rates but \u2018hawkish\u2019 forecast hits stocks and sends dollar jumping | inFundPros<\/title>\n<meta name=\"description\" content=\"Stay informed with free updatesSimply sign up to the US interest rates myFT Digest -- delivered directly to your inbox.The Federal Reserve cut interest\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" 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