Wall Street Plummets as Fed Signals Fewer Rate Cuts in 2025 and Revises Projections

Wall Street suffered significant losses on Wednesday, extending the moderate declines seen on Tuesday. Investors reacted sharply to the Federal Reserve’s latest rate decision and its updated economic projections. Notably, the Dow Jones Industrial Average marked its ninth consecutive day of losses, its longest losing streak in 46 years, though it remains less than 4% below all-time highs.

The Fed announced a 25-basis-point rate cut, bringing interest rates to a range of 4.25%–4.50%. This marks the third rate reduction in the current easing cycle and was widely anticipated by the market. However, the central bank’s outlook for 2025, which includes only two expected rate cuts, unsettled investors.

In its statement, the Fed reiterated its dual mandate of promoting maximum employment and bringing inflation back to its 2% target. The central bank noted that economic activity continues to expand at a solid pace. “Since the start of the year, labor market conditions have generally loosened, and the unemployment rate has risen slightly, though it remains low. Inflation has moved closer to the 2% target but remains somewhat elevated,” the Fed explained.

Fed Revises Economic and Inflation Projections

The Federal Reserve also updated its economic projections. PCE inflation for 2024 has been revised upward to 2.4%, a slight increase from its September forecast of 2.3%. For 2025, the inflation projection was increased to 2.5%, up from the prior estimate of 2.1%. Core inflation has also been revised higher, with expectations of 2.5% in 2025 and 2.2% in 2026.

On the economic growth front, the Fed now anticipates GDP to grow by 2.1% in 2024, an improvement of 0.1% from its previous estimate. The unemployment rate is expected to reach 4.3%, slightly lower than the 4.4% forecast in September.

Fed Chair Jerome Powell addressed the slower pace of anticipated rate cuts in 2025, attributing it to higher-than-expected inflation readings this year and the projection that inflation will remain elevated. Powell remarked, “We still see room to reduce rates, but future decisions will depend on the data. We've made significant progress with a 100-basis-point reduction, and from now on, we’ll proceed more cautiously.” He also noted that while the labor market has softened compared to pre-pandemic levels, it doesn’t require additional cooling to achieve inflation goals.

Investors Await Key Inflation Data

Another key focus for investors is the macroeconomic calendar. Third-quarter GDP and weekly unemployment claims will be released on Thursday. However, the primary event will be Friday’s release of the November PCE consumption deflator, the Fed’s preferred inflation measure. Analysts expect a general inflation rate increase to 2.5%, up from October’s 2.3%, with core inflation expected to edge higher from 2.8% to 2.9%.

Political Developments: Government Funding Agreement

On the political front, the U.S. Congress has reached a bipartisan agreement to extend government funding until March 14, avoiding a shutdown. The bill, set to be ratified in the coming days, allocates $100.4 billion in emergency aid for hurricane recovery efforts and $10 billion in economic relief for affected farmers. This extension will allow the newly elected Republican-majority Congress to address budget negotiations in early 2025.

Market and Corporate Highlights

In corporate news, Nvidia shares rebounded 5% on Wednesday after recent declines. The rally followed Piper Sandler analysts reaffirming their “overweight” rating on the stock, citing Nvidia as a top investment pick for 2025.

In other markets, West Texas Intermediate (WTI) crude oil rose 0.83% to $70.70 per barrel, while Brent crude gained 0.60%, trading at $73.64 per barrel. The euro dipped slightly, depreciating 0.01% to $1.0491, while gold prices edged lower by 0.16%, settling at $2,658 per ounce.

The 10-year U.S. Treasury yield climbed to 4.397%, reflecting heightened bond market volatility. Meanwhile, Bitcoin dropped 1.83%, trading at $104,676 as the cryptocurrency market faced renewed selling pressure.

Wall Street remains on edge as investors continue to digest the Fed’s policy shift and await crucial inflation data, which could further shape market expectations for 2025.