Wall Street dips, dollar strengthens as Fed cuts rates, tempers outlook
Fed cuts rates by 25 bps
Signals slower pace of rate cuts in 2025
Dow set to notch longest losing streak since 1978
Updates to U.S. afternoon trade
By Stephen Culp
NEW YORK, Dec 18 (Reuters) - Wall Street turned lower and the dollar gained strength on Wednesday after the U.S. Federal Reserve delivered the expected rate cut, but sent a clear signal that it will ease the pace of further cuts in the coming year.
Benchmark Treasury yields moved higher on the news, and the Dow reversed its gains, setting itself up for its tenth consecutive daily loss, its longest losing streak since 1974.
As expected, theFederal Open Market Committee (FOMC) cut the Fed funds target rate by 25 basis points at the conclusion ofits final policy meeting of 2024.
But the central bank also reduced the number of projected rate cuts in the coming year. The policymakers now expect two interest rate cuts by the end of 2025, down from four in September, and set up the likelihood of a pause in January.
"The Fed didn't throw any curveballs, right? They cut as expected, and they're using language hinting at fewer cuts next year and into 2026," said Ryan Detrick, chief market strategist at Carson Group in Omaha. "The market was holding out hope that maybe there'd be a little more dovishness to the statement, but that wasn't the case."
In his subsequent press conference, Fed Chair Jerome Powell offered assurances that the economy is strong, inflation as come closer to the 2% goal, and monetary policy is well-positioned to deal with risks.
"Let's not forget, you tend to get knee jerk reactions on Fed Day and then cooler heads prevail the next day," Detrick added. "The reality is still we have a strong economy and a Fed that is in no means looking to hike anytime soon. There are still cuts, likely coming just a little later in 2025.
The Dow Jones Industrial Average .DJI fell 393.11 points, or 0.90%, to 43,056.79, the S&P 500 .SPX fell 65.07 points, or 1.08%, to 5,985.54 and the Nasdaq Composite .IXIC fell 257.77 points, or 1.28%, to 19,851.29.
European shares closed modestly higher, buoyed by technology stocks and French automaker Renault RENA.PA, but gains were held in check ahead of the Fed's rate decision.
MSCI's gauge of stocks across the globe .MIWD00000PUS fell 8.93 points, or 1.03%, to 855.09.
The STOXX 600 .STOXX index rose 0.15%, while Europe's broad FTSEurofirst 300 index .FTEU3 rose 2.56 points, or 0.13%
Emerging market stocks .MSCIEF fell 0.39 points, or 0.04%, to 1,092.81. MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS closed lower by 0.05%, to 579.42, while Japan's Nikkei .N225 fell 282.97 points, or 0.72%, to 39,081.71.
Yields for 10-year U.S. Treasuries gained after the Fed decision.
The yield on benchmark U.S. 10-year notes US10YT=RR rose 8.7 basis points to 4.472%, from 4.385% late on Tuesday.
The 30-year bond US30YT=RR yield rose 6.2 basis points to 4.6406% from 4.579% late on Tuesday.
The 2-year note US2YT=RR yield, which typically moves in step with interest rate expectations for the Federal Reserve, rose 8.8 basis points to 4.329%, from 4.241% late on Tuesday.
The dollar was extended its gains against a basket of world currencies as investors digested the Fed's revised outlook.
The dollar index =USD, which measures the greenback against a basket of currencies including the yen and the euro, rose 1% to 108.01, with the euro EUR= down 1.07% at $1.038.
Against the Japanese yen JPY=, the dollar strengthened 0.69% to 154.54.
Bitcoin fell back from record highs, having churned upward in the aftermath of U.S. President-elect Donald Trump remarks about setting up a strategic bitcoin reserve.
Bitcoin BTC= fell 3.13% to $103,105.00. Ethereum ETH= declined 3.35% to $3,804.50.
Oil prices pared gains but settled higher in the wake of the Fed's decision.
U.S. crude CLc1 rose 0.71% to settle at $70.58 per barrel, while Brent LCOc1 settled at $73.39 per barrel, up 0.27% on the day.
Gold extended its losses after the U.S. central bank noted it would slow the pace of interest rates in 2025.
Spot gold XAU= fell 1.32% to $2,610.75 an ounce. U.S. gold futures GCc1 fell 1.38% to $2,608.00 an ounce.
World FX rates YTD http://tmsnrt.rs/2egbfVh
Asian stock markets https://tmsnrt.rs/2zpUAr4
Dot plot https://reut.rs/4gZlqIH
Reporting by Stephen Culp; Additional reporting by Amanda Cooper and Tom Westbrook
Editing by Nick Zieminski
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