Market Turmoil: Fed’s Hawkish Stance Sends Stocks Plummeting
The Federal Reserve’s latest policy decision sent shockwaves through US markets on Wednesday, sparking a sharp sell-off in stocks and a surge in Treasury yields. The S&P 500 suffered its worst loss on a rate decision day since 2001, plummeting below the 6,000 level.
A Shift in Tone
Federal Reserve Chair Jerome Powell’s comments hinted at a more cautious approach to interest rate cuts in 2025, citing concerns over inflation. The central bank’s forecast for fewer rate cuts next year caught investors off guard, leading to a broad-based sell-off in equities.
Tech Stocks Take a Hit
The tech-heavy Nasdaq 100 index fell 3.6%, its largest decline in five months. Micron Technology Inc. shares tumbled in post-market trading after the company reported earnings.
Dollar Strengthens, Yields Soar
The Bloomberg Dollar Spot Index jumped to its highest level since November 2022, while the policy-sensitive two-year US Treasury yield surged 10 basis points to 4.35%. The 10-year rate rose to a level last seen in May.
Powell’s Warning
“We need to see progress on inflation,” Powell emphasized. “That is how we are thinking about it. It is kind of a new thing. We moved quickly to get to here, but moving forward, we are moving slower.”
Market Reaction
The velocity of Wednesday’s drop was swift, with the S&P 500 falling 2.9% as of 4:01 p.m. New York time. The Nasdaq 100 fell 3.6%, while the Dow Jones Industrial Average declined 2.6%.
Currency and Commodity Moves
The euro fell 1.2% to $1.0368, while the British pound declined 1% to $1.2583. The Japanese yen fell 0.8% to 154.64 per dollar. West Texas Intermediate crude fell 0.1% to $69.99 a barrel, and spot gold dropped 2% to $2,593.75 an ounce.
What’s Next?
Investors will be closely watching key events this week, including Japan’s rate decision, the UK BOE rate decision, and US revised GDP data. With the Fed’s hawkish stance, market participants are bracing for a more gradual pace of easing in the coming months.
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