U.S. stocks looked set to pare back some of their losses on Thursday after Federal Reserve Chair Jerome Powell put a lump of coal in markets’ Christmas stocking by signaling that sticky inflation means investors shouldn’t expect deep rate cuts next year.
Futures tracking the Dow Jones Industrial Average climbed 158 points, or 0.4%. S&P 500 futures rose 0.4%, and contracts tied to the tech-heavy Nasdaq 100 climbed 0.3%. All three indexes had plummeted on Wednesday, with Powell’s hawkish presser sinking the Dow by 1,100 points to lock in its longest losing streak in half a century.
The mini-rebound will do little to ease Wall Street’s somber mood. The Fed stuck to the script by cutting interest rates by a quarter of a point, but Powell delivered a message nobody wanted to hear: Because inflation is still running above the central bank’s 2% target, investors should only expect it to slash borrowing costs twice next year.
“The Fed has poured cold water on already dwindling market hopes for generous rate cuts in 2025,” Jean Boivin, head of the BlackRock Investment Institute, said. “Markets now expect a pause in January and just two cuts in the whole of next year–down from almost six in early September.”
Central banks could throw up more surprises on Thursday. As expected, the Bank of Japan held rates at their current level, with the Bank of England set to announce its own policy decision at 7 a.m. Eastern time.
Oil prices were sliding after the Fed’s pessimistic messaging fueled worries about a U.S. economic slowdown that could drag on crude demand. The Brent international benchmark fell 0.5% to $73.01 a barrel, while West Texas Intermediate U.S. prices dropped 0.5% to $70.20 a barrel.
Bond yields were up over the past 24 hours on the expectation that rates will stay higher for longer. The yield on the 10-year U.S. Treasury note was at 4.523% on Thursday, and the yield on the 2-year note was at 4.336%.
