Fed Cuts Rates, Stocks and Crypto Slide on Powell’s Hawkish Tone
Federal Reserve Chair Jerome Powell delivered his remarks following the central bank’s quarter-point rate cut, with his hawkish tone causing stocks and cryptocurrencies to plunge.
On Wednesday, the Federal Reserve’s decision to cut interest rates by 25 basis points sent shockwaves through financial markets, with stocks and cryptocurrencies taking a sharp dive. While the move was widely expected, Fed Chair Jerome Powell’s cautious tone on future rate cuts unsettled investors.
The Federal Open Market Committee lowered its benchmark interest rate to a target range of 4.25% to 4.5%, marking its third consecutive rate cut this year. Powell emphasized the Fed’s focus on balancing inflation control and economic growth.
Also Read: Why This Small Biotech Stock Could Be Primed for a Breakout
At the press conference following the central bank’s announcement, Powell stated:
“With today’s action, we have lowered our policy rate by a full percentage point from its peak and our policy stance is now significantly less restrictive. We can therefore be more cautious as we consider further adjustments to our policy rate.”
Stocks Plunge Across the Board
The announcement triggered a steep sell-off on Wall Street. The Dow Jones Industrial Average (DJI) plunged 1,123 points, or 2.6%, while the S&P 500 Index (SPX) fell 3%. The tech-heavy NASDAQ Composite (IXIC) tumbled 3.6%. Smaller companies, particularly vulnerable to economic fluctuations, saw the Russell 2000 Index (RUT) drop 4.4%.
Nvidia (NASDAQ: NVDA), a key driver of the stock market’s rally earlier this year, fell 1.1%, extending its recent losing streak. General Mills (NYSE: GIS) also slumped 3.1% despite posting stronger-than-expected quarterly earnings. The company’s forecasted profit reduction due to increased investments in its brands added to its woes.
Jamie Cox, managing partner at Harris Financial Group, commented on the market’s reaction, saying:
“Markets have a really bad habit of overreacting to Fed policy moves. 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.”
Cryptocurrencies Crater
The crypto market mirrored the turbulence in stocks. Bitcoin (BTCUSD) dropped nearly 5% to $101,000, while Ethereum (ETHUSD) fell more than 6%, last trading at $3,654.11. Altcoins faced even steeper losses, with XRP (XRPUSD), Cardano (ADAUSD), and Litecoin (LTCUSD) all down nearly 10%.
Powell’s comments during the press conference provided little solace to crypto investors. He noted that while inflation has moderated, it remains stubbornly above the Fed’s 2% target.
When asked about future rate cuts, the Fed chair stated:
“As for additional cuts, we’re going to be looking for further progress on inflation as well as continued strength in the labor market. And as long as the economy and the labor market are solid, we can be cautious as we consider further cuts.”
Read Now: Why This Small Biotech Stock Could Be Primed for a Breakout
Hawkish Outlook Dampens Optimism
The Fed’s updated economic projections revealed a slower path for future rate cuts. Policymakers anticipate just two additional reductions in 2025, a shift from earlier expectations of four cuts. Inflation forecasts for 2025 were also revised higher, reflecting persistent price pressures.
Aditya Bhave, senior US economist at Bank of America (NYSE: BAC), called the reduction in projected 2025 rate cuts a “wholesale shift” by the Fed, while also noting:
“This was an unabashedly hawkish message from the Fed.”
Treasury yields surged in response, with the two-year yield rising to 4.35% and the 10-year yield climbing to 4.52%. The US Dollar Index (DXY) also jumped to a two-year high, adding to the pressure on risk assets.
Market Sentiment Turns Sour
The combination of fewer projected rate cuts and elevated inflation expectations has cast a shadow over market sentiment.
Jeff Buchbinder, chief equity strategist at LPL Financial, commented:
“Our 2025 Outlook a couple of weeks ago, stretched positioning and sentiment left stocks vulnerable to a selloff. The big jump in inflation expectations and related bond selloff was a convenient excuse. Once support from Tech evaporated, no other groups were able to step in to fill that gaping hole.”
Investors now face a delicate balancing act. While the Fed’s rate cuts aim to support the economy, the central bank’s measured approach underscores its vigilance against reigniting inflation.
Powell’s closing remarks summed up the Fed’s cautious stance:
“We are closer to the neutral rate, which is another reason about further moves.”
As 2024 draws to a close, markets will likely remain volatile, with equities and cryptocurrencies grappling with the Fed’s evolving monetary policy. Whether Powell’s cautious optimism will soothe investors or fuel further uncertainty remains to be seen.
Source: Federal Reserve YouTube
Read Next: Why This Small Biotech Stock Could Be Primed for a Breakout
Join the Discussion in the WVC Facebook Investor Group
Do you have a stock tip or news story suggestion? Please email us at Invest@WealthyVC.com.
Disclaimer: Wealthy VC does not hold a position in any of the stocks, ETFs or cryptocurrencies mentioned in this article.
