annual rate of 3.5% in 2025, up from the previous forecast of 3.2%. The central bank also raised its projection for GDP growth in 2026 and 2027.
Overall, the Federal Reserve’s decision to cut interest rates by 25 basis points and signal a slower pace of cuts next year led to a sharp sell-off in the stock market, with all three major indices closing in the red. Tech stocks, in particular, took a hit, with megacap Big Tech companies like Tesla, Amazon, Apple, and Microsoft all seeing significant declines. The 10-year Treasury yield rose following the Fed’s decision, leading to selling pressure in rate-sensitive areas of the market like small caps and real estate.
Federal Reserve Chair Jerome Powell highlighted the challenges the central bank faces in bringing inflation down to its 2% target, noting that inflation has underperformed relative to expectations this year. Powell emphasized the importance of progress on inflation and indicated that the Fed will be cautious with further interest rate cuts as long as the economy and labor market remain solid.
Looking ahead, the Fed’s updated economic forecasts and dot plot indicate that the central bank expects to cut interest rates two more times in 2025, with core inflation peaking at 2.5% next year before cooling off in the following years. The Fed also raised its projections for economic growth and lowered its forecast for the unemployment rate.
Overall, the Federal Reserve’s decision to cut interest rates and signal a slower pace of cuts next year reflects the central bank’s assessment of the economic outlook and inflation dynamics. The market reaction to the Fed’s decision underscores the importance of central bank policy in shaping investor sentiment and market trends.