US Stocks Attempt to Recover from Fed’s Rate Path Shock

US stocks have been recovering since the opening of Wall Street trading on Thursday from their worst decline in several months, which was triggered by a Federal Reserve statement that hinted at a slower pace of interest rate cuts. This came after the Fed announced a 25 basis point rate cut in its December meeting, which concluded on Wednesday.

The recovery was driven by widespread buying to cover the massive losses suffered by stocks on the New York Stock Exchange in the previous session. These buying activities aimed to compensate for the losses resulting from the heavy selling seen in major indices following signals that were interpreted by the markets as a tendency to keep interest rates unchanged in January.

The Dow Jones Industrial Average rose to 42,559 points, gaining 233 points or 0.6%. The S&P 500 also rose to 5,906 points, adding about 33 points or 0.6%, while the Nasdaq Composite climbed to 19,530 points, up about 140 points or 0.8%.

US stocks turned downward following the announcement by the Federal Open Market Committee of its official interest rate projections for the coming years. These projections suggested that the central bank may cut interest rates by less than it announced in the official projections issued after last September, which marked the start of the current cycle of quantitative easing with a 50 basis point rate cut.

The interest rate projections issued by the Federal Open Market Committee indicated the possibility of cutting interest rates by 25 basis points only twice in 2025, which was lower than what the previous official projections indicated.

Committee members expected the interest rate to be at 3.9% by the end of 2025. The Fed had previously expected the interest rate to be cut four times – 25 basis points each time – or 1.00% next year, according to the projections published by the central bank last September.

Fourteen out of 19 members of the Federal Open Market Committee voted in favor of cutting interest rates twice, 25 basis points each time, or less over the next year.

Fed’s Hawkish Turn: The Federal Reserve hinted at a slower pace of interest rate cuts, which initially sent shockwaves through the market.

Market Reaction: US stock markets experienced a significant decline following the Fed’s announcement but have since rebounded due to buying to cover previous losses.

Future Outlook: The Fed’s projections suggest a less aggressive stance on interest rate cuts in 2025, which could influence future market movements.