Dow, S&P 500, Nasdaq inch up after drop on Fed 2025 outlook

The Fed lowered its benchmark, short-term fed funds rate late Wednesday by a quarter percentage point, as expected, but pared back its forecast for rate cuts next year. It only expects to cut its rate twice, by a quarter precentage point each time amid forecasts for higher inflation. That’s down from its September forecast for four rate cuts at a quarter-point each. Prospects for fewer rate cuts and higher inflation pummeled all three main U.S. stock indexes, which posted their sharpest daily declines since August.

“Santa came early and dropped a 25 (quarter percentage point) rate cut in the market’s stocking but accompanied it with a note saying that there would be coal next year,” said Chris Zaccarelli, chief investment officer for Northlight Asset Management.

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By Thursday afternoon, the indexes had bounced back a little. The broad S&P 500 index was up 0.40%, or 23.36 points, at 5,895.52, and the tech-lade Nasdaq was up 0.48%, or 92.31 points, at 19,485.01. The blue-chip Dow was up 0.43%, or 184.02 points, at 42,510.89 and on track to snap a 10-day losing streak, its longest since 1974.