[New York Stock Market] Sharp Drop Amid 'Hawkish Rate Cut'... Dow Down for 10 Consecutive Trading Days

US Fed Cuts Interest Rate by 0.25%P
Number of Rate Cuts Expected Next Year Reduced from 4 to 2
Powell: "Inflation Rising... Will Move More Slowly"
US 10-Year Treasury Yield Surpasses 4.5%

The three major indices of the U.S. New York Stock Exchange all closed lower on the 18th (local time). Although the Federal Reserve (Fed) cut the benchmark interest rate for the third consecutive time, it repeatedly confirmed that this was a 'hawkish cut' (preference for monetary tightening) made before slowing the pace of cuts next year, causing investor sentiment to deteriorate sharply. As the Fed's outlook for rate cuts next year retreated, U.S. Treasury yields also surged, surpassing 4.5% for the 10-year note.

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On that day in the New York stock market, the blue-chip-focused Dow Jones Industrial Average closed at 42,326.87, down 1,123.03 points (2.58%) from the previous trading day. This marked the Dow's 10th consecutive day of decline since it first surpassed the 45,000 mark earlier this month, continuing the longest bearish streak in 50 years since 1974. The large-cap-focused S&P 500 index fell 178.45 points (2.95%) to 5,872.16, and the tech-heavy Nasdaq index plunged 716.37 points (3.56%) to close at 19,392.69.

The Fed's hawkish rate cut dragged the indices down. After the final Federal Open Market Committee (FOMC) regular meeting of the year, the Fed announced in its policy statement that it had decided to cut the federal funds rate for the third consecutive time, lowering it from 4.5?4.75% to 4.25?4.5%. The key was the dot plot reflecting rate cut expectations. The Fed raised the median year-end rate forecast for 2025 from 3.4% in September to 3.9%. Previously, in September, it had expected four 0.25 percentage point cuts next year, but now it signaled only two such cuts. This significant reduction in expected cuts was due to a recent pause in the inflation slowdown and a labor market that remained stronger than expected.

Fed Chair Jerome Powell reiterated his intention to slow the pace of rate cuts during the subsequent press conference. Powell said, "With today's action, the policy rate is 1 percentage point lower from its peak, and monetary policy is now considerably less restrictive," adding, "We can be more cautious as we consider further policy rate adjustments." Regarding the downward revision in expected rate cuts next year, he explained, "Inflation has recently risen," and "Fed officials will consider inflation progress when reviewing additional rate cuts."

Jan McIntyre, portfolio manager at Brandywine Global, said, "The actual rate cut was the least important factor at the December FOMC meeting and had already been priced into the market," adding, "The Fed did not disappoint (as expected), and considering the forward guidance, today's decision was a 'hawkish cut.'"

The Fed also updated its Summary of Economic Projections (SEP), which is released quarterly and includes GDP, inflation, and unemployment forecasts. The core Personal Consumption Expenditures (PCE) price index forecast for this year was set at 2.8%, and the GDP growth forecast at 2.5%, both revised upward by 0.2 and 0.5 percentage points, respectively. The year-end unemployment rate forecast was lowered from 4.4% to 4.2%.

David Russell, chief global market strategist at TradeStation, analyzed, "There was no Christmas cheer from the Fed," explaining, "Policymakers had no reason to be dovish (favoring monetary easing) given expectations of higher inflation and lower unemployment this year." He added, "Since rates are no longer clearly restrictive, it is a logical time to pause cuts."

As the Fed implemented a hawkish rate cut, Treasury yields rose. The 10-year U.S. Treasury yield, a global bond yield benchmark, jumped 13 basis points (bp) from the previous day to 4.51%, while the 2-year Treasury yield, sensitive to monetary policy, rose 10 bp to around 4.34%.

Among individual stocks, AI leader Nvidia fell 1.14%. Electric vehicle maker Tesla, which had set a new all-time high the previous day, plunged 8.28%. Semiconductor company Broadcom dropped 6.91%.

Meanwhile, the finalized third-quarter GDP growth rate, which provides insight into the U.S. economic situation, will be released the next day. On the 20th, the November Personal Consumption Expenditures (PCE) price index, the Fed's most closely watched inflation gauge, will be published.