Wall Street stocks tumbled and the dollar rallied on Wednesday after the Federal Reserve lowered borrowing rates again but projected fewer 2025 interest rate cuts in light of lingering inflation concerns.
U.S. indices lurched lower following the 1900 GMT Fed announcement of the actions but fell further during and after Federal Reserve Chair Jerome Powell's news conference.
All 11 sectors dropped in the S&P 500, which finished 3% lower. Meanwhile, the dollar jumped by more than 1% against the euro.
The market is now expecting interest rates will "remain higher for longer," said Briefing.com.
"Seeing the kind of decline we are experiencing right now indicates that the Fed took the market quite by surprise," said CFRA Research's Sam Stovall.
Although stocks often enjoy a late-year bounce referred to as the "Santa Claus rally," Stovall said the depth of Wednesday's drop could spur more selling if traders take profits.
"Maybe Santa is already on vacation," he added.
The U.S. central bank, as expected, moved ahead with a decision to reduce interest rates by a quarter point as Fed Chair Jerome Powell offered an upbeat appraisal of the U.S. economy.
But the announcement was coupled with the altered outlook on 2025 monetary policy.
After the latest interest rate cut, the Fed is now "significantly closer" to the point where no further cuts will be needed, said Powell, who emphasized the central bank still views 2% inflation as a critical long-term priority.
In the last couple of months, the Fed's favored inflation measure has ticked higher, moving away from the bank's long-term target of 2%.
Forex Live analyst Adam Button described Powell's tone during the press conference as a shift "back to more emphasis on inflation falling rather than keeping the employment market strong."
Button said the market may also have been reacting to signs of President-elect Donald Trump's opposition to a spending package that seeks to avert a fast-approaching U.S. government shutdown.
Elsewhere, official data Wednesday showed U.K. inflation had picked up in November, firming expectations that the Bank of England will hold off cutting its key interest rate on Thursday.
Traders were also waiting for the conclusion of the Bank of Japan's policy meeting Thursday.
In the car sector, Nissan shares soared, while Honda fell about 3%. Mitsubishi Motors — whose top stakeholder is Nissan — accelerated almost 20%.
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