Wall Street is tumbling after the Federal Reserve hints at just two interest rate cuts in 2025

NEW YORK – U.S. stock indexes fell on Wednesday after the Federal Reserve suggested it could deliver less adrenaline to the economy by cutting interest rates next year than previously thought.

The S&P 500 slipped 0.6%, erasing a gain earlier in the day to move slightly further away from its all-time high hit earlier this month. The Dow Jones Industrial Average fell 190 points, or 0.4%, and the Nasdaq Composite fell 0.6% as of 2:15 p.m. Eastern time.

The Fed said on Wednesday it was cutting its key interest rate for the third time this year, continuing the sharp reversal it began in September when it began cutting rates from a two-decade high to meet the to support a slowing labor market. Wednesday’s cut was widely expected.

The bigger question is what the Fed plans to do next year. A lot depends on it, especially after expectations of a series of cuts in 2025 helped the U.S. stock market hit an all-time high at least 57 times in 2024.

Fed officials released forecasts Wednesday showing they expect an average of two more rate cuts in 2025. That’s fewer than the four expected just three months ago. Such a move would cut the federal funds rate by half a percentage point, providing half as much relief as in 2024, when the Fed cut a full percentage point to bring it to a range of 4.25% to 4.50%.

Amid growing uncertainty, officials are reducing their forecasts for cuts. The pace of inflation has picked up somewhat recently, having fallen from its peak above 9% almost all the way to the Fed’s target of 2%. There is also grave concern that President-elect Donald Trump’s preference for tariffs and other measures could further boost inflation and economic growth.

While lower interest rates can stimulate the economy by making borrowing cheaper for U.S. households and businesses and driving up the price of investments, they can also spur inflation.

Lower expectations of interest rate cuts in 2025 caused Treasury yields to rise in the bond market.

The yield on the 10-year Treasury note rose to 4.45% from 4.40% late Tuesday. The two-year Treasury yield, more in line with expectations for Fed action, rose to 4.32% from 4.25%.

On Wall Street, shares of companies feeling the most pressure from higher interest rates posted some of the worst losses.

For example, property owners in the S&P 500 fell 1.8%, representing the largest loss among the 11 sectors that make up the index.

Elsewhere on Wall Street. General Mills fell 3.8% despite reporting higher-than-expected profit for its latest quarter. The maker of Progresso soups and Cheerios said it would increase its investments in brands to help them grow, leading it to cut its profit forecast for this fiscal year.

On Wall Street’s winning side, Jabil rose 8.2% to secure market leadership after the company reported higher earnings and revenue for the latest quarter than analysts expected. The electronics group also increased its sales forecast for the full financial year.

Nvidia, the superstar responsible for part of Wall Street’s record rise in recent years, rose 2.8% after a weeks-long slump. It was down more than 12% from its record set last month and fell in eight of the previous nine days as its great momentum faded.

In overseas stock markets, London’s FTSE 100 rose less than 0.1% after data showed inflation accelerated to 2.6% in November, its highest in eight months. The Bank of England is also meeting this week to discuss interest rates and will announce its decision on Thursday.

In Japan, where the Bank of Japan concludes its own monetary policy meeting on Friday, the Nikkei 225 slipped 0.7%. That’s despite a 23.7% rise for Nissan Motor Corp., which said it was in talks to work more closely with Honda Motor Co., although no decision had been made on a possible merger. Honda Motor shares fell 3%.

Nissan, Honda and Nissan alliance member Mitsubishi Motors Corp. agreed in August to share electric vehicle components such as batteries and jointly research autonomous driving software to better adapt to dramatic changes in the automotive industry.