By Isla Binnie
NEW YORK (Reuters) – Major stock indexes closed with modest losses and the dollar gained ground in choppy trading on Wednesday after the U.S. Federal Reserve opted for a super-large cut in borrowing costs in more than four years.
The central bank cut the overnight rate by half a percentage point, more than the quarter point usual for adjustments, citing greater confidence that inflation will continue to ease back toward the 2% annual target.
That rate, which determines how much interest banks pay each other and affects rates for consumers, is now 4.75%-5.00%, the lower end of the range markets had expected.
The benchmark rose as much as 1% after the announcement before retreating to close up 0.29% at 5,618.26.
“It’s important to note that stocks aren’t rushing forward (at least not yet) after getting what they wanted. After seven straight days, a lot of good news was priced in,” said Steve Sosnick, chief market strategist at Interactive Brokers. NASDAQ 🙂 in Greenwich, Connecticut.
The price closed 0.25% lower at 41,503.10 and fell 0.31% to end at 17,573.30.
Rates have been at the highest level in more than twenty years since July 2023.
The MSCI world stock index rose to a record high during the session before turning south. It was last down 0.29% at 826.29.
The , which measures the dollar against a basket of currencies including the yen and euro, weakened after the announcement before rising 0.07% to 100.98.
In the US government bond market, yields on interest-rate-sensitive 2-year government bonds rose 3.8 basis points to 3.6297%, up from 3.592% late on Tuesday.
The yield on 10-year benchmark bonds rose 6.6 basis points to 3.708%, up from 3.642% late Tuesday.
A BIG BITE TO GET STARTED
Attention quickly turned to what the Fed would do next as it strives to fulfill its dual mandate of promoting maximum employment and stable prices.
Chairman Jerome Powell said he saw no sign of a recession, citing solid growth, lower inflation and “a labor market that remains at very solid levels.” He also said the Fed might have started cutting spending sooner, following a surprisingly weak jobs report in July, if it had seen those numbers sooner.
Markets have now fully priced in a cut of at least 25 basis points at the next central bank meeting in November, with a roughly 40% chance of a further 50 basis point cut.
“There’s a lot of room here to fall even further, combined with what I would call wobbly labor data, wobbly and not scary… They took a big bite to start,” said Tom Herrick, chief market strategist at Cary Street Partners in Richmond . Virginia.
Next on a busy policy calendar is a meeting of the Bank of England on Thursday, where financial markets expect interest rates to remain unchanged. The Bank of Japan is expected to do the same on Friday.
On Wednesday afternoon after the Fed meeting, the Japanese yen rose 0.11% to 142.24 per dollar. Sterling strengthened 0.28% to $1.3193.
Gold fell 0.62% to $2,553.67 an ounce after hitting record highs earlier this week.
Oil prices fell as the interest rate cut was seen as a response to unrest in the US labor market. settled at $73.65 a barrel, a loss of 5 cents.
