 "Dow Jones, Sensex sink on US Fed rate cut news; check key takeaways")
Global market, Fed rate cut news: Global stock markets went into a tailspin Thursday morning, tracking a sharp overnight drawdown on Wall Street where Dow Jones index cracked over 1,100 points after the US Federal Reserve’s interest rate cut decision.
The Dow Jones Industrial Average slid 1,123.03 points, or 2.58 per cent, to 42,326.87 — declining for a 10th day and clocking its longest losing streak since 1974.
The S&P 500 tumbled 2.95 per cent to 5,872.16 and the Nasdaq Composite lost 3.56 per cent to 19,392.69 after Fed Chair Jerome Powell said the Fed was likely to only cut interest rates twice next year, down from the previous estimate of 4 rate cuts. Wall Street's volatility index, CBOE VIX,soared 74 per cent, whereas 10-year US Treasury yield rose to 4.5 per cent.
Mainline indices across the Asia Pacific region, including Japan’s Nikkei and Australia’s ASX200, fell in the range of 0.8 per cent to 2 per cent.
Back home, GIFT Nifty futures were trading nearly 350 points lower at 23,912 levels at 7:35 AM, signalling a shaky session for India stock market today. The Sensex and Nifty indices also await Bank of Japan’s interest rate decision, due today.
Here are key takeaways from the US Federal Rate Cut News:
US Fed signals lower rate cuts next year:
While cutting the key interest rate by 25 basis points to 4.25-4.5 per cent, as penciled-in by the markets, the US Fed said that it may lower rates only twice in 2025, the timing of which is uncertain for now.
“With today’s action, we have lowered our policy rate by a full percentage point from its peak, and our policy stance is now significantly less restrictive. We can, therefore, be more cautious as we consider further adjustments to our policy rate,” Chair Jerome Powell told reporters at his post-meeting news conference.
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Dissent among Fed members:
Fed Chair Jerome Powell said the latest rate cut was ‘a closer call’, adding that recent inflation readings were ‘the single biggest factor’ on officials’ minds during the meeting. For a second consecutive meeting, Cleveland Fed President Beth Hammack wanted the US Fed to maintain status quo on rates.
US GDP, Inflation forecast revised upwards in 2025
The US Fed has pushed the full-year 2024 gross domestic product (GDP) growth forecast to 2.5 per cent, half a percentage point higher than September. However, in the ensuing years, the officials expect GDP to slow down to its long-term projection of 1.8 per cent.
Further, the headline and core inflation estimates, too, were nudged higher to 2.4 per cent and 2.8 per cent, respectively, slightly higher than the September estimate and above the Fed’s 2-per cent goal.
Cautious Stance
The Fed’s statement mentioned that the Committee will continue to ‘monitor the implications of incoming information’ for the economic outlook. The Committee, it said, would adjust the stance of monetary policy if risks emerge that could impede the attainment of the Committee's goals.
“In considering the extent and timing of additional adjustments to the target range for the federal funds rate, the Committee will carefully assess incoming data, the evolving outlook, and the balance of risks. The Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage??'backed securities,” Fed statement said.
Trump Factor
Commenting on President-elect Donald Trump’s policies, Fed Chair Powell said the Committee needs to take its time.
“We do not have to rush but make a very careful assessment. We need to see what the actual policies are and how they’ve been implemented,” Powell said.
Notably, Donald Trump has indicated plans for tariffs, tax cuts, and mass deportations – all of which could be inflationary.