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Fed Cuts Interest Rates by 0.25% but Investors Frown Upon Slower Pace of Easing

Key points:
  • Fed cuts rates by 0.25%
  • Fed projects two cuts in 2025
  • Dollar rallies, gold, indexes slide
Illustration by TradingView

US dollar strengthened and gold fell off a cliff. All three Wall Street indexes slipped as Fed said it’s almost done slashing rates.

  • The US Federal Reserve slashed the benchmark interest rate USINTR by a quarter point in the final moments of its two-day meeting Tuesday and Wednesday. Officials have now trimmed interest rates by a full percentage point since they started cutting rates in September. But all that easy-money policy moves may very well stay into this year as the central bank said it plans to slow down the pace of easing and reduce borrowing costs just two times next year.
  • The current cut was approved by 11 of 12 Fed voters and lowered the Fed’s benchmark federal-funds rate to a range between 4.25% and 4.50%, a two year low. Two more cuts of 25 basis points each next year implies the range would slide to 3.75% and 4%. That is, if the economy continues to grow steadily and the labor market remains in good shape. Inflation is expected to remain cool also.
  • Reactions across the board: the US dollar rallied against the euro with the EURUSD pair trading at around $1.0380. Gold prices XAUUSD nosedived about 1% from $2,645 to $2,610 per ounce and the main Wall Street indexes — S&P 500, Dow Jones, Nasdaq Composite — got knocked by about 0.5% each as investors digested the news that borrowing costs won’t continue to drop as much as they would’ve wanted.

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