Stocks Decline After Fed Cuts Rates as Expected

U.S. stocks fell Wednesday, erasing earlier gains after the Federal Reserve cut interest rates by a quarter of a percentage point and the central bank's economic projections signaled a slower pace of cuts next year.

The Fed cut rates by 25 basis points to the 4.25%-4.50% range and its summary of economic projections (SEP) indicated it will make rate cuts totaling a half percentage point by the end of 2025 given the solid labor market and the recent stall in lowering inflation.

Investors were watching comments from Fed Chair Jerome Powell for more insight on the path of interest rates from the central bank.

"It looks like some early worries about tariffs could be creeping into the Fed’s projections. They’re penciling in fewer rate cuts in 2025, slightly higher inflation, and a modest increase in the unemployment rate," said Brian Jacobsen, Chief Economist at Annex Wealth Management in Menomonee Falls, Wisconsin.

"The Fed can cut back on the pace of rate cuts thanks to a strong economy."

The Dow Jones Industrial Average fell 105.67 points, or 0.25%, to 43,342.93, the S&P 500 lost 28.31 points, or 0.46%, to 6,022.71 and the Nasdaq Composite lost 109.43 points, or 0.55%, to 19,999.63.

U.S. Treasury yields moved higher after the statement as the benchmark U.S. 10-year note rose 6.3 basis points to 4.448%.

Higher interest rates are usually seen as a drag to the equity market, boosting the appeal of less risky assets while also crimping the ability of companies to grow earnings.