The U.S. Federal Reserve's decision to cut interest rates but signal a pause in future reductions sent shockwaves through global markets, with both the S&P 500 and TSX experiencing sharp declines. The Fed's updated projections, indicating a more cautious approach, fueled investor uncertainty and contributed to the market volatility.
TORONTO — Markets on both sides of the border fell sharply Wednesday afternoon after the U.S. Federal Reserve cut interest rates and reined in its projections for cuts in the new year, with the S&P 500 losing almost three per cent and the TSX down more than two per cent. The Fed cut its key rate by a quarter-percentage point, and released projections showing it will likely cut twice in 2025 instead of the four cuts it projected just three months ago.
‘When the path is uncertain, you go a little slower,' Fed Chair Jerome Powell said. The widely expected cut was the least important part of the announcement, said Andrew Buntain, vice-president and portfolio manager at Fiduciary Trust Canada. Instead, market watchers were eyeing the Fed’s updated projections. The Fed has “entered a new phase of monetary policy with that hawkish language, and that’s the pause phase,” said Buntain, and on Wednesday, that new phase sunk in for investors. “Policy uncertainty is going to make for more volatile financial markets in (2025),” he said. U.S. stocks posted one of the worst days of the year after the news. The Dow Jones industrial average was down 1,123.03 points, or 2.6 per cent, at 42,326.87. The S&P 500 index was down 178.45 points at 5,872.16, while the Nasdaq composite was down 716.37 points, or 3.6 per cent, at 19,392.69. The S&P/TSX composite index closed down 562.71 points at 24,557. The U.S. economy and consumer are doing much better than their Canadian counterparts, said Buntain, giving the Fed less room to keep lowering interest rates. Meanwhile, the Bank of Canada recently cut rates by an outsized half-percentage point. “In Canada, we've got a different set of circumstances. The consumer is not as flush with cash,” said Buntain, while higher interest rates are weighing on homeowners. There’s also the “big unknown” of U.S. president-elect Donald Trump’s tariff threats, said Buntai
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