Wall Street stocks dipped Wednesday after the Federal Reserve announced a half a percentage-point interest rate cut and its chair promised a “careful” approach to lowering rates following progress in countering US inflation.
Policymakers voted 11-to-1 in favor of dropping the central bank’s benchmark rate to between 4.75 percent and 5.00 percent.
The Fed went with the bigger rate cut, surprising some analysts who had tapped a quarter-point decrease as the more likely decision.
Policymakers also penciled in an additional half-point of cuts before the end of this year, and an added percentage point of cuts in 2025.
Major US stock indices moved in and out of positive territory after the Fed decision, with the Dow Jones Industrial Average finishing down 0.3 percent at 41,503.10.
The Fed’s decision will be met “with both elation and criticism,” said Briefing.com. “The larger rate cut should placate participants who think the Fed is behind the curve already in trying to forestall a hard landing.”
“Conversely, it will elicit criticism from participants who think the larger rate cut wasn’t warranted given broader economic trends,” the market analysis firm said.
“The worry will be that the more aggressive rate cut risks igniting inflation again.”
Fed Chair Jerome Powell described the US economy as in “good shape,” pointing to lower inflation and solid growth.
“The labor market is in a strong pace. We want to keep it there,” Powell told a news conference.
Powell said the decision to go bigger was based on myriad economic data points that led policymakers to conclude that monetary decisions had been “appropriately restrictive,” but that it was time for a “more neutral” approach.
But while Powell signaled that investors should expect more interest rate cuts ahead, he cautioned that the central bank would “go carefully” and weigh the matter “meeting by meeting.”
Powell “wanted to tell us that, you know, don’t expect this all the time,” said Steve Sosnick of Interactive Brokers. “Investors get one thing and always want more.”
In Europe, Paris and London closed lower, while Frankfurt ended the day flat.
The dollar initially tumbled against the euro and other currencies, but later recovered. The Fed now sees just a half percentage point of cuts remaining in 2024, below the three-quarter percentage point that traders had been expecting.
Traders are looking ahead to Thursday’s announcement by the Bank of England.
The central bank is seen sitting tight following a regular meeting, as official data Wednesday showed British annual inflation held at 2.2 percent in August.
– Key figures around 2100 GMT –
New York – Dow: DOWN 0.3 percent at 41,503.10 (close)
New York – S&P 500: DOWN 0.3 percent at 5,618.26 (close)
New York – Nasdaq Composite: DOWN 0.3 percent 17,573.30 (close)
London – FTSE 100: DOWN 0.7 percent at 8,253.68 points (close)
Paris – CAC 40: DOWN 0.6 percent at 7,444.90 (close)
Frankfurt – DAX: DOWN 0.1 percent at 18,711.49 (close)
Tokyo – Nikkei 225: UP 0.5 percent at 36,380.17 (close)
Shanghai – Composite: UP 0.5 percent at 2,717.28 (close)
Hong Kong – Hang Seng Index: Closed for a holiday
Pound/dollar: UP at $1.3207 from $1.3161 on Tuesday
Euro/dollar: UP at $1.1120 from $1.1114
Dollar/yen: DOWN at 142.29 yen from 142.41 yen
Euro/pound: DOWN at 84.17 pence from 84.44 pence
West Texas Intermediate: DOWN 0.4 percent at $70.91 per barrel
Brent North Sea Crude: DOWN 0.1 percent at $73.65 per barrel
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