The stock market drops after the Fed hints rate cut was just an ‘adjustment,’ not the start of a trend

Stocks fell to their lows of the day on Wednesday as the top Federal Reserve official dampened hopes for further rate cuts later this year.

The Dow Jones Industrial Average traded 245 points lower, or 0.9%. The S&P 500 and Nasdaq Composite slid 0.8% and 0.8%, respectively.

Fed Chair Jerome Powell told reporters…

the central bank’s rate cut was a “mid-cycle adjustment, ” hinting that further rate cuts later this year are not a sure thing.

The Fed reduced the overnight rate by 25 basis points, marking its first cut since the financial crisis more than 10 years ago. The central bank’s policymaking committee cited “global developments ” along with “muted inflation” as reasons for easing monetary conditions. Traders had been pricing in a quarter-point rate cut heading into the announcement. The Fed also said it will end the reduction of its balance sheet and opened the door for future rate cuts.

“This is very much in line with what we were expecting, including the balance sheet,” said Gregory Faranello, head of U.S. rates at AmeriVet Securities. “When you look at what they’ve released, a lot of that has been out there. He’s talking about uncertainty, the potential for more if it’s warranted. He’s referring to survey and market-based inflation numbers as both being muted. These are pretty consistent with what he’s pointed to.”

Treasury yields climbed off their lows. The 10-year note yield traded at 2.03%. The dollar jumped against a basket of currencies, trading 0.2% higher. Bank stocks hit their highs of the day, with the SPDR S&P Bank ETF (KBE) rising 0.2%.

The cut comes amid mixed economic data. U.S. economic growth slowed down to 2.1% in the second quarter. However, that growth rate was better than expected.

“The Fed has capitulated to softer economic growth. Inflation is headed lower, but recession is unlikely,” said David Abramson, chief U.S. strategist at Alpine Macro, in a note. “Policy reflation should put a floor under stock prices and sustain the forward earnings multiple, even as overall profit momentum fades in the coming months.”

The projected move from the Fed has…

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