Powell Delivers a Hawkish Cut

The Federal Reserve lowered interest rates on Wednesday by 0.25%, as expected. This brought the benchmark interest rate to a target range of 4.25 percent to 4.50 percent. The decision was near-unanimous, with 11 Fed members voting for the 25 bp cut and one member voting to maintain rates.

The market had priced in the chance of a 25bp cut at almost 100%, as the Fed did a good job of telegraphing its plans in the weeks before the announcement. What caught the markets by surprise was the hawkish forecast for the rate path in 2025. The Fed revised downwards its interest rate forecast, paring the number of 25bp cuts next year to just two, compared to four in the September forecast. This sent the US dollar strongly higher against the major currencies but stocks tumbled on Wall Street.

The rate statement indicated that inflation was moving in the right direction but still remained too high. Members noted that progress had been made in lowering inflation to the Fed’s 2% target but it “remains somewhat elevated”.

Federal Reserve Chair Powell said in a post-meeting press conference that he was “very optimistic” about the US economy and that the Fed was “significantly closer” to ending the current easing cycle. At the same time, Powell noted that the downswing in inflation had stalled, saying, “We have been moving sideways on 12-month inflation”.

Top Forex Brokers

1 Get Started 74% of retail CFD accounts lose money Read Review

US Dollar Surges Higher, Stock Markets Slide 

The currency markets showed strong movement in the aftermath of the Fed’s rate decision, as the US Dollar posted strong gains against all the major currencies on Wednesday. The EUR/USD currency pair declined by 1.32% on the day while the AUD/USD currency pair plunged 1.90%. Both the Euro and the Aussie recovered some of these losses early Thursday.

Major stock indices took a tumble on Wednesday as investors reacted negatively to the Fed’s signal that it planned just two rate cuts in 2025. Lower rates make it cheaper to borrow and purchase stocks and investors had hoped for the Fed’s aggressive rate-cutting cycle to continue into next year.

The S&P 500 Index fell sharply, dropping by 178.45 points (2.95%) and closed at 5872.16. This was the index’s second largest decline this year.

 The Nasdaq 100 Index declined by a massive 791.77 points (3.6%) and closed at 21,209.31.

Get more Forex trading news. Get our top recommended Forex brokers list here.