Wall Street falls sharply as Fed signals smaller interest rate cuts in 2025 to fight inflation | Federal Reserve
The US Federal Reserve reduced interest rates on Wednesday, but indicated it would make smaller rate cuts than expected in 2025 amid questions about its battle to reduce inflation in the world’s largest economy.
Fed Chairman Jerome Powell said inflation was “stubborn,” but insisted that the central bank believes raising interest rates will continue to erode the pace of price rises.
Wall Street fell sharply, with the S&P 500 closing down nearly 3% as investors digested the announcement. The technology-focused Nasdaq Composite fell 3.6%.
Central bank policymakers cut the benchmark federal funds rate by a quarter of a percentage point to a range of 4.25% to 4.5% in its final rate decision before Donald Trump takes office in January.
Although inflation has fallen significantly since peaking at its highest rate in a generation two years ago, it remains higher than the Fed would have liked – and has been rising in recent months.
The broader US economy remains strong, with employers adding an estimated 227,000 jobs in November. But the difficulty of growing prices has raised concerns about progress in efforts to bring them down to normal pre-pandemic levels.
However, Powell said he remains optimistic about the US economy. I think it’s clear that we have avoided a recession. “I think growth this year has been strong.” “The American economy has been great.”
Americans’ frustration with rising prices in recent years has been cited as a major factor behind the election victory of Donald Trump, who repeatedly pledged during his campaign to bring down these prices.
But even the president-elect has since acknowledged that this pledge – which has drawn skepticism from many economists – will not be an easy feat.
Asked by Time magazine whether his presidency would be a failure if prices did not fall, Trump responded He replied“I don’t think so. Look, they’ve got them up. I’d like to drop them. It’s hard to drop things once they’re up. You know, it’s very difficult. But I think they will do it.”
Trump’s return to the White House sets the Fed on a potentially difficult path. He has repeatedly criticized decisions taken by the central bank, and his allies have even raised the possibility of reducing its independence.
Powell, whose relationship with the president-elect suffered after his appointment during his first administration, said last month that he would not resign if Trump asked him to leave office.