Stocks tanked after the Fed signaled fewer rate cuts next year. Here’s what Wall Street analysts see ahead.
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The Federal Reserve cut its benchmark interest rate on Wednesday to between 4.25% and 4.5%.
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The central bank also predicted two cuts next year instead of four, sending stocks lower.
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Many analysts believe that the reaction is exaggerated.
Federal Reserve Lowering the benchmark interest rate On Wednesday to a range of 4.25% to 4.5%, bringing the decline since mid-September to 100 basis points.
Wall Street Usually celebrated Interest rate cuts as lower borrowing costs lead to spending, investment and employment. Lowering interest rates also signals that inflation is under control and makes risky assets such as stocks relatively more attractive by lowering yields on safer assets such as Treasury bonds.
yet Stock tank Because Fed officials expected two cuts next year, down from four previously.
the Standard & Poor’s 500 and Dow Jones It decreased by about 3%, while it decreased Nasdaq 100 It fell nearly 4% after the meeting. Sharp decline led to 74% rise VIXotherwise known as the stock market fear gauge. This was the second largest single-day jump in history.
But while many market pros are still urging caution amid smaller interest rate cuts in 2025, a number of analysts across Wall Street see Wednesday’s sell-off as a “buy the dip” opportunity, with Intense reaction to the Fed meeting is derailing this year’s outlook. Santa Claus March.
Here’s what investors and analysts are saying after Wednesday’s violent sell-off.
Schleif said investors were “overreacting” because they knew before the meeting that the Fed would likely signal a pause on interest rate cuts.
Moreover, the economy remains strong, which is most important, she added.
“Markets seem to be ignoring the number of times and ways in which Chairman Powell has indicated how strong the economy is,” Schleif said. “The slowing pace of Fed cuts is for good reason: the economy is strong, and a strong economy is ultimately what matters most for stocks and earnings.”
The Fed’s hawkish pivot probably won’t last and instead shift to dovish once the labor market shows signs of weakness, Citi economists said.
With only 50 basis points of interest rate cuts priced into the market between now and mid-2026, Hollinghurst isn’t buying it.
“The continued decline in the labor market is likely to become more pronounced in the coming months, keeping the Fed cutting rates at a faster pace than markets determine,” Hollinghurst said in a note on Wednesday. “We expect a sharp shift in monetary policy from Powell and the committee in the next few months.”
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