This morning, the Federal Reserve announced a rate cut of 25 basis points but indicated that it would slow the pace of rate cuts next year, lowering rates by only 50 basis points instead of the 100 basis points expected in September. Due to the slower-than-expected pace of rate cuts, major U.S. stock indexes closed sharply lower today, with the Dow dropping over 1100 points, marking ten consecutive trading days of losses. The cryptocurrency market also experienced a plunge, with Bitcoin falling below the $100,000 mark.
This morning, the Federal Reserve announced a 25 basis point rate cut, as expected by the market. The Federal Open Market Committee (FOMC) voted 11 to 1 to lower the federal funds rate to a range of 4.25%-4.5%, with Cleveland Fed President Beth Hammack casting the dissenting vote, advocating for maintaining the rate.
The Federal Reserve's hawkish stance has resulted in a double whammy for stocks and cryptocurrencies.
However, the Fed has lowered its forecast for rate cuts next year, indicating that future rate cuts will be more cautious. The new dot plot shows that, based on median predictions, Fed officials expect the benchmark rate to reach a range of 3.75% to 4% by the end of 2025, meaning there will only be two rate cuts of 25 basis points each next year, fewer than the four expected at the September meeting.
Furthermore, Fed officials have also lowered their forecast for the number of rate cuts in 2026, with the federal funds rate expected to remain at 3.4% two years from now, higher than the 2.9% anticipated in September.
Federal Reserve interest rate dot plot. Source: Bloomberg
The Federal Reserve now expects that it will take longer for inflation to return to the 2% target, thus lowering expectations for rate cuts next year. Fed Chairman Powell stated at a post-meeting press conference that today's decision was indeed difficult, but the Fed believes it is the right choice. A new phase is ahead, and the Fed will be more cautious about further rate cuts, needing to see more progress on inflation before considering additional cuts.
Due to the slower-than-expected pace of rate cuts, the U.S. stock market fell on Wednesday, with the Dow dropping over 1100 points, marking the first time since 1974 that it has declined for ten consecutive trading days. The performance of the four major U.S. stock indices is as follows:
The Dow Jones Industrial Average fell 1123.03 points or 2.58%, closing at 42326.87 points.
The S&P 500 index dropped 178.45 points or 2.95%, closing at 5872.16 points.
The Nasdaq index decreased by 716.36 points or 3.56%, closing at 19392.70 points.
The Philadelphia Semiconductor Index fell 198.81 points or 3.85%, closing at 4970.98 points.
The seven major U.S. stocks also fell, with Tesla plunging 8.28% the hardest, while Nvidia's decline of 1.14% was the least severe.
The cryptocurrency market also experienced a plunge, with Bitcoin falling from a morning high of $104,800, hitting below $100,000 at 10 a.m., and dipping as low as $98,960. It currently reports at $99,632, with a 24-hour drop of 5.5%.
Additionally, the sharp drop in Bitcoin may also be related to Powell's statement that the Federal Reserve has no intention of participating in the government hoarding large amounts of Bitcoin. He stated at the post-meeting press conference that the Fed is not allowed to hold Bitcoin, and the legal issues surrounding Bitcoin holdings are matters for Congress to consider, but the Fed is not currently seeking to amend the law.
Incoming President Trump previously stated that he would establish a U.S. strategic Bitcoin reserve but did not mention the details of this plan, only noting that approximately 200,000 Bitcoins seized from criminals by the U.S. government could serve as initial reserves. Republican Senator Cynthia Lummis has proposed a bill to establish a national Bitcoin reserve, allowing the Treasury to purchase 200,000 Bitcoins annually until accumulating 1 million.
However, Barclays analysts released a report this week analyzing that funding for the strategic Bitcoin reserve may require congressional approval and the issuance of new U.S. bonds, hence the bank doubts this plan will face strong opposition from the Federal Reserve.
