Global Markets React To Federal Reserve's Rate Cut Decision

A board above the floor of the New York Stock Exchange shows the closing number for the Dow Jones industrial average, Wednesday, Dec. 18, 2024. (AP Photo/Richard Drew)

Global markets experienced a downturn on Thursday following a sharp decline in U.S. stocks after the Federal Reserve hinted at potentially fewer rate cuts in 2025 than previously anticipated. The Fed reduced its key rate by a quarter of a percentage point to a range of 4.25% to 4.5%, in line with expectations. Meanwhile, the Bank of England was expected to maintain its policy rate, and the Bank of Japan kept its benchmark rate at 0.25%, leading to a strengthening of the dollar against the Japanese yen.

World markets saw declines of less than 2%, with European markets also being affected. In early trading, the FTSE 100 in Britain dropped 1.2%, the CAC 40 in Paris fell 1.2%, and Germany's DAX was 1% lower. Futures for the S&P 500 and the Dow Jones Industrial Average showed slight gains, while in Asia, Tokyo's Nikkei 225 lost 0.7%.

A weaker yen can drive up prices in Japan due to heavy reliance on imports, potentially pressuring the Bank of Japan to raise rates. Analysts predict a rate hike by the BOJ in January, but caution that the central bank is monitoring potential impacts of President-elect Donald Trump's tariff policies.

Chinese markets also experienced declines, with the Hang Seng index falling 0.6% and the Shanghai Composite index dropping 0.4%. Other Asian markets, including Australia's S&P/ASX 200, South Korea's Kospi, India's Sensex, Taiwan's Taiex, and Bangkok's SET, all recorded losses.

European markets, including FTSE 100 and DAX, dropped.

U.S. stocks fell after the Fed hinted at fewer rate cuts in 2025.

Bank of England maintained its policy rate, while Bank of Japan kept its rate at 0.25%.

Weaker yen may lead to price increases in Japan due to import reliance.

The recent rate cut by the Fed, the third this year, comes as part of efforts to support the job market. However, investors are now focused on the Fed's future rate-cutting plans, with expectations tempered by projections showing a median expectation of two more cuts in 2025, down from earlier forecasts.

Fed Chair Jerome Powell highlighted the strong performance of the job market and recent upticks in inflation as reasons for potentially slowing rate cuts. Concerns about the impact of Trump's policies on inflation are also influencing the Fed's cautious approach.

In commodity markets, U.S. benchmark crude oil and Brent crude both saw slight declines, while the euro strengthened against the dollar.