[New York Stock Market] All Indices Rise on 'Dovish Powell'... Market Expects Two Rate Cuts Next Year

Fed Cuts Rates by 0.25% for Third Consecutive Time
One Rate Cut Projected for Each of Next Two Years
Despite Hawkish Cut, Powell's Remarks Remain Moderate
"Downside Risks in Labor Market... Tariff-Driven Inflation Is One-Off"
Market Pr

On December 10 (local time), all three major indices on the New York Stock Exchange closed higher. Although the US Federal Reserve (Fed) signaled a cautious monetary policy after cutting rates for the third consecutive time, dovish signals-favoring monetary easing-were detected in the Fed's statement and economic outlook, which stimulated investor sentiment. The market is increasingly hopeful that the number of rate cuts next year could exceed the Fed's projection of just one cut.

EPA Yonhap News

On this day at the New York Stock Exchange, the blue-chip Dow Jones Industrial Average closed at 48,057.75, up 497.46 points (1.05%) from the previous trading day. The S&P 500, focused on large-cap stocks, rose 46.17 points (0.67%) to 6,886.68, while the tech-heavy Nasdaq gained 77.669 points (0.33%) to finish at 23,654.155.

The market focused on the results of the Federal Open Market Committee (FOMC) meeting held that day. The Fed lowered the federal funds rate by 0.25 percentage points to a range of 3.5-3.75% per annum, marking its third consecutive cut following those in September and October. However, internal disagreements over monetary policy direction were revealed as three of the 12 voting FOMC members dissented (two favored holding rates steady, and one called for a 0.5 percentage point cut). The dot plot, which outlines future rate expectations, projected one additional cut each in 2026 and 2027. While the 0.25 percentage point cut and multiple dissenting votes were anticipated, the market noted that the Fed's statement, economic outlook, and comments from Fed Chair Jerome Powell at his press conference were more moderate than expected, contrary to concerns that they would be hawkish-favoring monetary tightening.

At the press conference held immediately after the FOMC meeting, Powell stated, "We are in a good position to observe how the economy develops." This helped to ease market concerns that he would signal a 'hawkish cut,' hinting at a pause in the monetary easing cycle. He estimated that the current policy rate is at a 'neutral' level-neither stimulating nor restraining the economy-and emphasized, "At present, rate hikes are not part of anyone's base scenario," firmly ruling out the possibility of further tightening.

Regarding the recent economic situation, Powell assessed that there are greater downside risks in the labor market and diagnosed that tariff-driven inflation would be a one-off factor. This aligns with the Fed's statement, which cited a slowdown in employment as the background for the latest rate cut. The Fed noted in its policy decision document, "Since the start of this year, job growth has slowed, and the unemployment rate has risen slightly through September," adding, "Recent indicators support this trend." On inflation, the Fed assessed, "It has increased compared to the beginning of the year and remains at a somewhat elevated level."

Additionally, through its Summary of Economic Projections, the Fed forecast that the core Personal Consumption Expenditures (PCE) inflation rate will decrease from 3.0% at the end of 2025 to 2.5% by the end of 2026, fueling market expectations for more room for future rate cuts. The Fed's confirmation of its plan to resume purchases of short-term Treasury securities that day also had a positive impact on investor sentiment.

The market is now anticipating more than two rate cuts next year, exceeding the Fed's projection of just one. According to the CME FedWatch tool at the Chicago Mercantile Exchange, as of today, the interest rate futures market reflects a 70.6% probability that rates will be at least 0.5 percentage points lower by the end of 2026, up from 6.13% the previous day.

US Treasury yields are also on the decline. The yield on the benchmark 10-year US Treasury note fell by 3 basis points (1bp = 0.01 percentage points) from the previous session to 4.15%, while the yield on the two-year Treasury note, which is sensitive to monetary policy, dropped by 6 basis points to 3.54%.

Jose Torres, Senior Economist at Interactive Brokers, commented, "The news of balance sheet expansion is certainly encouraging and more than offsets concerns that the extent of future rate cuts will be limited," adding, "Moreover, the strong growth, moderated inflation, and neutral employment outlook reflected in the economic projections are all positive for both stock and bond returns."

By stock, US manufacturer GE Vernova surged 15.59% after announcing an increase in its share buyback program and dividends. Amazon rose 1.69% after stating it would invest $35 billion in India over the next five years. Apple gained 0.58%. Microsoft and Nvidia declined by 2.78% and 0.64%, respectively.