Wall Street Plunges as Fed Plans Fewer Rate Cuts in 2025.

The central bank has reduced the benchmark federal funds rate by 25 basis points, bringing it to a range of 4.25% to 4.5%.

The US Federal Reserve announced a reduction in interest rates on Wednesday, yet indicated that it would implement fewer rate cuts than anticipated in 2025, amidst ongoing concerns regarding its efforts to reduce inflation in the largest economy in the world.

Jerome Powell, the chair of the Federal Reserve, characterized inflation as "stubborn," while affirming that the central bank is confident its rate increases will continue to diminish the rate of price increases.

In response to the announcement, Wall Street experienced a significant decline, with the S&P 500 closing nearly 3% lower, and the tech-oriented Nasdaq composite falling by 3.6%.

In its final rate decision before Donald Trump takes office in January, the central bank reduced the benchmark federal funds rate by a quarter of a percentage point, bringing it to a range of 4.25% to 4.5%.

Although inflation has significantly decreased since reaching a generational high two summers ago, it remains above the Fed's target and has shown an uptick in recent months.

The broader US economy continues to demonstrate strength, with an estimated addition of 227,000 jobs in November. However, the persistent nature of price growth has raised concerns regarding the effectiveness of measures aimed at returning inflation to pre-pandemic levels.

Powell expressed that he continued to hold an optimistic view regarding the US economy. “I think it’s pretty clear we have avoided a recession. I think growth this year has been solid,” Powell told a news conference. “The US economy has been remarkable.”

The growing discontent among Americans regarding the increase in prices in recent years has been identified as a significant contributor to Donald Trump's electoral success, as he consistently promised during his campaign to reduce these costs.

However, the president-elect has acknowledged that fulfilling this promise—met with doubt by numerous economists—will be a considerable challenge.

When questioned by Time magazine about whether his presidency would be deemed unsuccessful if prices do not decrease, Trump responded: “I don’t think so. Look, they got them up. I’d like to bring them down. It’s hard to bring things down once they’re up. You know, it’s very hard. But I think that they will.”

The prospect of Trump's return to the White House presents a challenging scenario for the Federal Reserve. He has consistently voiced his disapproval of the central bank's decisions, and his supporters have suggested the possibility of limiting its autonomy.

Jerome Powell, who has experienced a tumultuous relationship with the incoming president since his initial appointment during Trump's first term, indicated last month that he would not step down if requested to do so by Trump.

The Federal Reserve's decision to reduce interest rates while signaling fewer cuts in 2025 highlights the ongoing struggle to control inflation. Despite some economic growth, inflation remains persistent, leaving the Fed with limited options.

Wall Street’s sharp decline reflects market concerns over the effectiveness of these measures, and the Fed’s cautious approach may only prolong the financial uncertainty. Meanwhile, Donald Trump's rhetoric surrounding inflation and his skepticism of the Fed’s actions create further instability. With the central bank’s independence under threat and inflation continuing to burden Americans, the future of the economy remains uncertain and challenging.

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