US stock markets experienced significant declines following the Federal Reserve’s decision to cut interest rates for the third time in a row while signaling a more cautious pace of rate reductions in the future. The central bank lowered its key lending rate to a range of 4.25% to 4.5%, citing progress in stabilizing prices and concerns about economic weakening. However, Federal Reserve Chairman Jerome Powell emphasized the need to proceed cautiously due to persistent inflationary pressures, with November inflation ticking up to 2.7%. Major US indices reacted negatively, with the Dow experiencing its longest losing streak since 1974.
Global markets mirrored the US downturn, with Japan’s Nikkei and Hong Kong’s Hang Seng also posting losses. Analysts warn that factors like president-elect Donald Trump’s policy proposals, including tax cuts and import tariffs, may further stoke inflation. Powell defended the latest rate cut, acknowledging the decision was challenging amid uncertainties tied to the incoming administration’s economic policies. Despite signs of resilience in the labor market and economic growth, the Fed’s forecasts project a slower decline in interest rates and sustained inflation above the 2% target for 2025.
This decision also highlights a contrast between the Federal Reserve and the Bank of England, which is expected to maintain its interest rate at 4.75% amidst rising wage and service price inflation. Economists have criticized the Fed’s approach, suggesting it risks reversing progress made on inflation control. As central banks globally navigate economic uncertainties, both inflation and labor market trends remain pivotal in shaping monetary policy decisions.
