Stocks, Bonds Push Lower on Powell’s Remarks: Markets Wrap

(Bloomberg) — US stocks declined further and bond yields climbed after the Federal Reserve lowered rates by a quarter point as expected but reduced its forecast for cuts in 2025.

The S&P 500 fell nearly 2% and the Nasdaq 100 dropped 2.6%. The policy-sensitive two-year US Treasury yield surged 10 basis points to 4.35%. Bloomberg’s gauge of the dollar rose to its highest level since November 2022.

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On Wednesday, Fed Chair Jerome Powell reemphasized that the central bank would be more cautious as it considers further adjustments to the policy rate. He also added that was still “meaningfully restrictive” and the committee is “on track to continue to cut.” 

Powell reiterated at the press conference that the Fed was committed to reaching its 2% target. 

“We’re not going to settle for that,” he said about inflation staying above that goal. 

Markets are reacting to several Fed officials penciling in fewer rate cuts for next year than they expected a few months ago. Traders are now pricing in less than a half-point of cuts in 2025.

“Dots are hawkish even relative to what were fairly hawkish expectations going in — it’s taking much longer to get to ‘neutral’ — in fact it doesn’t get there in the forecast horizon,” said Scott Ladner of Horizon Investments. “Additionally, Powell is characterizing this change as being more about inflation worries than about robust economy, so hawkish for the ‘wrong reason.’”

Max Gokhman, senior vice president at Franklin Templeton Investment Solutions, called Powell “a hawk in dove’s clothing.”

“Despite playing down the recent slowdown in disinflation while boasting about the strength of economic momentum, he still hinted that tariffs won’t be written off as transitory and that the two-cut forecast for 2025 is necessary because policy must remain restrictive,” he said.

Whitney Watson of Goldman Sachs Asset Management expects the Fed to skip a rate cut in January before resuming on its easing path in March.

“While the Fed opted to round out the year with a third consecutive cut, its New Year’s resolution appears to be for a more gradual pace of easing,” Watson, global co-head and co-chief investment officer of fixed income and liquidity solutions at the firm, said.

Key events this week: 

• Japan rate decision, Thursday
• UK BOE rate decision
• US revised GDP, Thursday
• Japan CPI, Friday
• China loan prime rates, Friday
• Eurozone consumer confidence, Friday
• US personal income, spending & PCE inflation, Friday

Stocks

• The S&P 500 fell 1.9% as of 3:29 p.m. New York time
• The Nasdaq 100 fell 2.6%
• The Dow Jones Industrial Average fell 1.5%
• The MSCI World Index fell 1.8%

Currencies

• The Bloomberg Dollar Spot Index rose 0.9%
• The euro fell 1.3% to $1.0357
• The British pound fell 1.1% to $1.2573
• The Japanese yen fell 0.8% to 154.65 per dollar

Cryptocurrencies

• Bitcoin fell 4.5% to $101,582.01
• Ether fell 5.7% to $3,709.28

Bonds

• The yield on 10-year Treasuries advanced 10 basis points to 4.49%
• Germany’s 10-year yield advanced one basis point to 2.25%
• Britain’s 10-year yield advanced three basis points to 4.56%

Commodities

• West Texas Intermediate crude rose 0.2% to $70.22 a barrel
• Spot gold fell 1.9% to $2,596.44 an ounce

This story was produced with the assistance of Bloomberg Automation.

–With assistance from Vildana Hajric.

©2024 Bloomberg L.P.