Federal Reserve Chair Jerome Powell announced a 25-basis-point reduction in the key US interest rates on Wednesday. However, the Federal Open Market Committee's rate cut outlook, suggesting fewer reductions than anticipated earlier, disappointed Wall Street. The Dow Jones Industrial Average crashed 1,123 points, or 2.6 per cent, to settle at 42,326.9 after the news.  

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Here are key things to know about this news: 

  • The December 18 reduction marks a third rate cut in the current cycle of policy easing. 
  • The benchmark US interest rate rate now stands at 4.25-4.50 per cent, with policymaker projections projecting two rate cuts in 2025—fewer than anticipated earlier.
  • With that, the benchmark US rates returned to the level in December 2022 when rates were last being increased. 
  • Mentioning stubbornly high inflation, Powell said that more rate cuts will now hinge on further progress in controlling consumer prices. 
  • His cautious remarks and the Fed's closely tracked 'dot-plot'—a graph that indicates policymakers' projection of future interest rates—sent Wall Street indices tumbling, with the S&P 500 closing 178.5 points, or 3.0 per cent, lower at 5,872.2 and the tech stocks-heavy Nasdaq Composite falling 716.4 points, or 3.6 per cent, to 19,392.7.
  • Bond yields, on the other hand, spiked as investors dialed back their earlier expectations of decreasing borrowing costs in the coming months. The 10-year Treasury yield climbed up to 4.5 per cent. 
  • The latest dot-plot projects half the number of cuts anticipated in the previous policy meeting, in September.  
  • The December review marked a second back-to-back meeting where Fed policymakers dissented on the rate decision.  
  • The latest Fed action comes at a time when inflation in the world's largest economy sticking beyond the US central bank’s target.
  • Investors now await key rate decisions by the Bank of Japan and the Bank of England due on Thursday for cues. 

With inputs from agencies