Federal Reserve Chair Jerome Powell surprised markets on Wednesday evening.Jacquelyn Martin/AP
The Federal Reserve cut its benchmark interest rate Wednesday to between 4.25% and 4.5%.
The central bank also projected two cuts next year instead of four, sending stocks tumbling.
Many analysts see the reaction as overdone.
The Federal Reserve cut its benchmark interest rate on Wednesday to a range of 4.25% to 4.5%, bringing its decline since mid-September to 100 basis points.
Wall Street usually celebrates rate cuts as lowering borrowing costs drives spending, investing, and hiring. Reducing rates also signals inflation is under control and makes risk assets like stocks relatively more attractive by trimming yields on safer assets like Treasurys.
Yet stocks tanked because Fed officials projected two cuts next year, down from four previously.
The S&P 500 and Dow Jones declined nearly 3%, while the Nasdaq 100 dipped nearly 4% after the meeting. The sharp drop fueled a 74% surge in VIX, better known as the stock market’s fear gauge. It was its second-largest one-day jump in history.
But while many market pros still urge caution amid fewer rate cuts in 2025, a number of analysts across Wall Street see Wednesday’s sell-off as a “buy the dip” opportunity, with the intense reaction to the Fed meeting unlikely to derail this year’s “Santa Claus” rally.
Here’s what investors and analysts are saying after Wednesday’s brutal sell-off.
Investors were “overreacting” because they knew going into the meeting that the Fed was likely to signal a pause in rate cuts, Schleif said.
On top of that, the economy remains strong, which is what matters the most, she added.
“Markets seemed to ignore the number of times and ways that Chair Powell noted how strong the economy is,” Schleif said. “The slower pace of Fed cuts is for a good reason, which is that the economy is strong, and a strong economy is ultimately what matters most for stocks and earnings.”
Economists at Citi said the Fed’s hawkish pivot probably wouldn’t last and instead turn dovish once the labor market…
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