Stock Market Sells Off on New Fed Rate Policy

Wednesday, December 18, 2024

Today’s Federal Open Market Committee (FOMC) decision to cut interest rates has had a negative effect on today’s stock market. Those record highs we had been seeing in the Nasdaq and elsewhere my perhaps something we won’t be speaking about much in the near future.

Fed Cuts 25 bps to Lowest Rate in 2 Years, Markets Hate It

With the 25 basis-point (bps) cut today, the Fed funds rate is now down to a range of 4.25-4.50%, where we haven’t been since January of 2023. But this isn’t the reason the major stock market indexes are down from -2.4% (Dow) to -4.4% (Russell 2000) — that has to do with what Fed Chair Jerome Powell said in his press release following the release.

In an almost matter-of-fact presentation this afternoon, Powell said the FOMC was only looking to cut two more times in the new year, instead of the previous dot-plot’s indicated four cuts. At 25 bps per, this would take the interest rate range down to 3.75-4.00%, not 3.25-3.50%. This would be significant for things like home mortgages, which may now remain elevated for the foreseeable future, keeping prospective home buyers from entering the market.

Bond yields wasted no time moving higher. They were pretty directly in line with the 20 bps gap between 10-years and 2-years, but have bloomed to 4.50% on the 10-year and 4.30% on the 2-year. It’s worth noting that the 10-year high had reached 4.73% — will this be taken out based on this higher projection of interest rate levels?

Did Powell Achieve a “Soft Landing”?