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The Federal Reserve cut interest rates to between 4.25% and 4.5% on Wednesday.
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The central bank also predicted two cuts next year instead of four, sending stock prices tumbling.
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Many analysts view the reaction as overblown.
The Federal Reserve lowered its benchmark interest rate to a range of 4.25% to 4.5% on Wednesday, bringing the decline since mid-September to 100 basis points.
Wall Street usually celebrates interest rate cuts because lowering borrowing costs stimulates spending, investment and hiring. Lowering interest rates also signals that inflation is under control and makes risky assets such as equities relatively more attractive by lowering interest rates on safer assets such as government bonds.
Yet supplies refueled as Fed officials predicted two cuts next year, up from four previously.
The S&P500 And Dow Jones fell by almost 3%, while the Nasdaq100 fell by almost 4% after the meeting. The sharp decline led to a 74% increase VIXbetter known as the stock market’s fear meter. It was the second largest single-day jump in history.
But while many market professionals are still urging caution amid fewer rate cuts through 2025, a number of Wall Street analysts are seeing Wednesday’s sell-off as a “buy the dip” opportunity, with the intense reaction to the Fed meeting pushing interest rates higher. unlikely to derail this year. Sinterklaas meeting.
Here’s what investors and analysts are saying after Wednesday’s brutal sell-off.
Investors “overreacted” because they knew going into the meeting that the Fed was likely to announce a pause in rate cuts, Schleif said.
Plus, the economy remains strong, which is the most important thing, she added.
“Markets seemed to ignore the number of times and ways in which Chairman Powell noted how strong the economy is,” Schleif said. “The slower pace of Fed cuts is for good reason: the economy is strong, and a strong economy is ultimately the most important thing for stocks and profits.”
Economists at Citi said the Fed’s hawkish stance was unlikely to last long and would instead turn dovish once the labor market showed signs of weakening.
With only 50 basis points of rate cuts priced into the market between now and mid-2026, Hollenhorst isn’t buying this.
“The continued weakening of the labor market is likely to become even more pronounced in the coming months, causing the Fed to cut spending faster than markets are pricing in,” Hollenhorst said in a note on Wednesday. “We expect a sharp, dovish turn from Powell and the committee in the coming months.”