ASX set to tumble as Wall Street sinks on Fed’s 2025 call; $A plunges

While lower rates can offer a boost to the economy by making it cheaper to borrow and boosting prices for investments, they can also offer more fuel for inflation.

Powell said some Fed officials, but not all, are also already trying to incorporate uncertainties inherent in a new administration coming into the White House. Worries are rising on Wall Street that President-elect Donald Trump’s preference for tariffs and other policies could further juice inflation, along with economic growth.

“When the path is uncertain, you go a little slower,” Powell said. It’s “not unlike driving on a foggy night or walking into a dark room full of furniture. You just slow down.”

One official, Cleveland Fed President Beth Hammack, thought the central bank should not have even cut rates this time around. She was the lone vote against Wednesday’s rate cut.

The reduced expectations for 2025 rate cuts sent Treasury yields rising in the bond market, squeezing the stock market.

The yield on the 10-year Treasury rose to 4.50 per cent from 4.40 per cent late Tuesday, which is a notable move for the bond market. The two-year yield, which more closely tracks expectations for Fed action, climbed to 4.35 per cent from 4.25 per cent.

On Wall Street, stocks of companies that can feel the most pressure from higher interest rates fell to some of the worst losses.

Stocks of smaller companies did poorly, for example. Many need to borrow to fuel their growth, meaning they can feel more pain when having to pay higher interest rates for loans. The Russell 2000 index of small-cap stocks tumbled 4.4 per cent.

Elsewhere on Wall Street, General Mills dropped 3.1 per cent despite reporting a stronger profit for the latest quarter than expected. The maker of Progresso soups and Cheerios said it will increase its investments in brands to help them grow, which pushed it to cut its forecast for profit this fiscal year.

Nvidia, the superstar responsible for a chunk of Wall Street’s rally to records in recent years, fell 1.1 per cent to extend its weekslong funk. It has dropped more than 13 per cent from its record set last month and fallen in nine of the last 10 days as its big momentum slows.

On the winning end of Wall Street, Jabil jumped 7.3 per cent to help lead the market after reporting stronger profit and revenue for the latest quarter than analysts expected. The electronics company also raised its forecast for revenue for its full fiscal year.

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All told, the S&P 500 fell 178.45 points to 5,872.16. The Dow Jones dropped 1,123.03 to 42,326.87, and the Nasdaq composite skidded 716.37 to 19,392.69.

In stock markets abroad, London’s FTSE 100 edged up by less than 0.1 per cent after data showed inflation accelerated to 2.6 per cent in November, its highest level in eight months. The Bank of England is also meeting on interest rates this week and will announce its decision on Thursday.

In Japan, where the Bank of Japan will wrap up its own policy meeting on Friday, the Nikkei 225 slipped 0.7 per cent. That was despite a 23.7 per cent jump for Nissan Motor Corp., which said it was in talks on closer collaboration with Honda Motor Co., though no decision had been made on a possible merger. Honda Motor’s stock lost 3 per cent.

Nissan, Honda and Nissan alliance member Mitsubishi Motors Corp. agreed in August to share components for electric vehicles like batteries and to jointly research software for autonomous driving to adapt better to dramatic changes in the auto industry.

AP

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