The main stock indexes showed intense nervousness at the end of the session, as they rose immediately after the announcement, but this was stopped by the remarks by Chairman Jerome Powell.
The demonstration that drove its moment S&P 500 and Dow Jones Index at record levels stopped since the Fed Fed Chairman Jerome Powell has warned that the market should not take the continuation of the 50 basis point interest rate cuts for granted.
While this isn’t necessarily a negative, given that big rate cuts are often accompanied by financial crises, traders have pushed stocks close to session lows. However, there are some concerns that the U.S. central bank is trying to preempt a potential economic slowdown.
The Dow Jones closed down 103.08 points, or 0.25%, at 41,503.10, but gained 375.79 points immediately after the Fed’s announcement.
The S&P 500 fell 0.3% to close at 5,618.26. The Nasdaq posted a corresponding drop of 17,573.30. The S&P 500 and Dow Jones hit all-time highs immediately after the decision, only to immediately retreat.
The Federal Reserve raised its key interest rate to a range of 4.75% to 5%, its first rate cut in four years, as inflation eased from highs of the previous two years.
“The Commission has become more confident that inflation is moving steadily towards the 2% target and considers that the risks to the achievement of the two inflation and employment targets are roughly balanced,” the statement said.
Traders were expecting a 50 basis point cut instead of the traditional 25 basis point cut, and they finally got what they hoped for, but stocks failed to hold on to their gains.
“The decision to cut 50 basis points suggests the Fed has gained the confidence it wanted that the downward trend in inflation is stable and can now turn its attention to avoiding the potential negative effects on the economy of keeping interest rates too high for too long,” said Philip Strael, chief investment officer at Morningstar Wealth.
Fed Chairman Jerome Powell sought to allay concerns that the central bank has been aggressively cutting interest rates because it sees something troubling in the economy. He stressed that the move is because upside risks to inflation have been significantly limited.
“I don’t see anything in the economy right now that suggests an increased risk of a slowdown,” Powell said.
Despite that, stocks have pulled back. That’s partly because expectations for a big selloff in Wednesday’s session have been rising. The S&P 500 is up more than 18% this year and 2% in the past month.