Fed surprises markets with jumbo cut, volatilities jump

US stocks ended weaker following a volatile session on Wednesday after the Federal Reserve cut interest rates by 50-basis point (bps) to a range of 4.75% to 5.00%, its first reduction since March 2020, sending the dollar lower.

Stocks initially surged on the big rate cut decision, before swinging wildly to eventually close in the red. Heading into the decision, markets were split on whether the US central bank would kick off its easing cycle with a 25bps or 50 bps cut to interest rates amid worries about the strength of the economy.

Headline US inflation has been coming down, but core inflation remains sticky, meanwhile weak payrolls data for the last two months has raised fears of a possible recession in the world’s biggest economy.

The Federal Open Market Committee (FOMC) meeting’s statement noted that inflation has made “further progress” toward its 2% goal but remains “somewhat elevated” as economic activity has expanded at a solid pace.

The consensus among Fed officials is for two more 25 basis point cuts this year, four cuts in 2025 and two more in 2026. But Fed chair Jerome Powell said that he would not pre-commit to rate cuts in advance, and the FOMC would make decisions on a meeting-by-meeting basis.

At the stock market close in New York, the blue-chip Down Jones Industrials Average was down 0.3% at 41,503, while the broader S&P 500 index shed 0.3% to 5,618, and the tech-laden Nasdaq Composite also fell 0.3% to 17,573.

Among individual stocks, Intuitive Machines soared 38.3% higher after winning a $5 bn contract from Nasa to provide lunar communications and navigation services.

Elsewhere, United States Steel added 1.5% amid reports that Nippon Steel has won an extension in the review of its $14.1 billion approach for the American steelmaker.

And Victoria's Secret rose 3.5% after analysts at Barclays upgraded their rating for the lingerie maker to equal weight from underweight.

Among commodities, oil prices dropped amid demand concerns as the big Fed rate cut announcement raised worries about the health of the US economy.

UK Brent crude was down 1.1% at $72.19 a barrel, losing 5 cents, while US WTI crude shed 1.5% to $70.16 a barrel.

Investors largely shrugged off a crude oil inventory decline that they attributed to the impact of short-lived weather.

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